STERLING JUMPS ON POTENTIAL BREXIT BREAKTHROUGH
Sterling jumped yesterday after it was reported by Bloomberg that Germany and the UK have made progress regarding Brexit negotiations, potentially paving the way for Britain to strike a favourable deal with the EU. This was a major shift from the previous hard-line stance between the UK and the EU. Last week, the leader of the EU said that he was strongly opposed to many parts of the Chequers plan. On Sunday, Theresa May responded in an opinion piece saying that she will not accept a deal unfavourable of her country.
The US dollar fell slightly against its major peers yesterday after the US trade deficit increased to a five-month high in July. Data from the commerce department said that the deficit jumped by 9.5% to $50.1 billion as exports of soybeans and civilian aircraft declined and imports hit a record high. The goods trade deficit with China increased by 10% to a record $36.8 billion.
After days of sustained gains, the price of Bitcoin dropped sharply yesterday after a report said that Goldman Sachs was abandoning its plans to set up a cryptocurrencies trading desk. When the bank announced these plans, traders viewed it as positive news for blockchain because its clients are large institutions and high net-worth individuals. Executives at the bank, however, considered the move to be risky because of how deregulated the crypto industry is. This news came a few weeks after SEC rejected nine crypto ETF proposals, which traders viewed as being positive for the industry. While reasons for rejection are now being reviewed, the total market capitalization of cryptocurrencies tracked by Coin Market Cap dropped by $18 billion.
The Canadian dollar was little moved after the Bank of Canada released its interest rate decision. The bank left interest rates unchanged as expected. Officials indicated that while the economy is ripe for another rate hike, the ongoing trade talks between Canada and the US presented some short-term risks. Traders expect the bank to hike in October when it will present its quarterly economic forecast. The bank pointed to an improving economic condition where household debt is falling, the housing market is stabilizing, and business investment is rising.
EUR/USD is slightly higher than yesterday’s close, partly because of the dollar weakness. It is now trading at 1.1634, which is above the 61.8% Fibonacci Retracement level. This level is slightly higher than the 50 and 100-day moving average and along the upper Bollinger Band. Today, the main drivers for the pair will be the ADP job numbers and Germany’s factory orders. Therefore, the key levels to watch will be 1.1732 in the upside and the 38.2% Fibonacci level of 1.1485 to the downside.
The price of Bitcoin dropped sharply from a high of $7330 to a low of $6140. This ended an important rally that started in mid-August. The BTC/USD pair is now trading at 6343, which is the lowest level since August 23 and below an important diagonal support. There is a likelihood that the pair will continue moving lower and if it does, it could trade below the 600 level.
USD/CAD started a strong rally on Thursday last week. The pair moved from a low of 1.2887 to a high of 1.3208. This week, the pair has found resistance between 1.3208 and 1.3156, with the former being an important double top. This means that the likely movement for the pair will be downwards as the BOC moves to raise interest rates in October. In the short term, the pair could reach the 38.2% Fibonacci Retracement level of 1.3100.