SLIDE OF THE CABLE AS BREXIT FEARS MOUNT
The pound fell sharply against the dollar and the euro today after concerns on Brexit continued to rock the markets. The GBP/USD and EUR/GBP pairs reached intraday lows of 1.2900 and 0.8990 respectively. In addition, the expectations for volatility on the pound reached the highest level since February. The current plunge on the pound is a continuation of what started on Monday following the comments by secretary Liam Fox who forecasted a 60% chance of a no-Brexit deal.
The Japanese Yen strengthened against the dollar after the Bank of Japan released the minutes of the meeting held a week ago. The minutes showed that there were differences in opinions among key policymakers on the way forward for the long-term Japan Government Bonds (JGBs). One official was in support of Haruhiko Kuroda’s proposal to let the 10-year bonds run above 0.20%. Another official was against letting the yield continue to run. This raised the possibility that the BOJ will change its statement in the coming meeting. However, the country continues to resist the Philips Curve theory, which states that inflation rises as the unemployment rate falls. Indeed, the unemployment rate has remained below 2.5% but the national CPI has struggled to move past 1.2%.
The Australian dollar moved slightly lower against the dollar after a statement by the Reserve Bank of Australia (RBA) governor. The governor said that he expected inflation to reach the target of 2.5% in mid-2020. In the statement, he said, ‘we see reasonable prospects that the economy will record good growth, the unemployment rate will come down gradually and that inflation will increase over time. If this is how things evolve, you could expect the next move in interest rates to be up, not down.’ The RBA has left rates unchanged during the past 22 meetings, which is a record.
The GBP/USD pair started the year in a bullish pattern. It reached a YTD high of 1.4380 in April and then started a sharp decline. Today, the pair reached an intraday low of 1.2900, which is the lowest level since September last year. On the daily chart below, the pair is trading below the 50, 100, and 200-day exponential moving average, while the RSI is trading at 30. In the past few weeks, the RSI has traded close to the oversold levels. After reaching the 1.2900 support level, the pair is likely to consolidate at this level. Further declines will see it test the 1.2700 level.
The euro fell slightly today against the dollar and is currently trading at 1.1596. This price is slightly higher than Monday’s intraday low of 1.1530. Today, the pair has traded between the 23.6% and 38.2% Fibonacci Retracement levels. With no major economic data expected today to provide the catalyst, the pair is likely to trade within this narrow range. The key levels to watch are the 50% Fibonacci level of 1.1640 and this week’s low of 1.1530.
Last week, the AUD/USD pair started a sharp rise from 0.7347. It reached a high of 0.7440 yesterday. As the pair rose, it created a cup pattern. Today, it created a handle when the pair moved slightly lower to an intraday low of 0.7400. Therefore, any decline at this level will likely be a buying opportunity because the pair could continue the upward trend.