STERLING VOLATILITY CONTINUES AS TRADERS EYE BREXIT

The US dollar index declined today as traders started worrying about the future of interest rates. On Friday, Fed vice chair Richard Clarida said that he was seeing a cooling of the global economy. The statement was followed by that of Robert Kaplan who said that China’s and Europe’s growth were easing. The challenge for the Fed is whether it will continue tightening even as the rest of the world economy weakens. The expectations among traders is that the Fed will continue hiking interest rates. A rate hike is expected in December and three or four more in 2019.

The sterling declined against major peers as traders braced for uncertainty on Brexit. In a speech today, Theresa May said that the Brexit deal she has negotiated will help the country take control of its borders. The same sentiment was repeated by EU’s chief negotiator, Michael Bernier, who said the deal will help the country take back its border. The biggest contributor to the decline was May’s comment that the transition should end before the next election. The election will be held in March 2022. The transition was expected to end in 2020 but in the weekend Bernier said that the transition should be extended to December 2022.

The Japanese Yen was little moved today after Japan released trade data. The numbers showed that exports rose by 8.2%, which was lower than the 9.0% that traders were expecting. It was higher than the decline of 1.3% that was previously reported. Imports rose by 19.9%, which was higher than the 14.5% that traders were expecting. It was also higher than the 7.0% that was released previously. The trade deficit increased sharply to ¥449 billion, which was higher than the ¥70 billion that traders were expecting.

USD/JPY

The USD/JPY was in consolidation mode after the pair reached the lowest level since November 2. On the hourly chart, the pair’s 30-day EMA and 15-day EMA appear to be making a crossover, which is an indication that the pair could start moving higher. If it does, the first resistance level will likely be 112.94, which is the 23.6% Fibonacci Retracement level. Further upward movement will likely see it test the 38.6% Fibonacci level of 113.17.

GBP/USD

The GBP/USD pair declined today to an intraday low of 1.2792. This was the lowest level since Friday. The volatility on the pair continued as shown by the Average True Range (ATR) indicator below. The RSI has moved from 30 to the current 44 while the MACD is moving up. In the short term, the pair will continue to experience some volatility as traders continue to focus on the Brexit issue.

EUR/USD

The EUR/USD pair rose to an intraday high of 1.1434. This was the highest level since November 8. The pair’s RSI increased to the current 64 while the double EMA shows that the pair could continue moving up, albeit at a lower rate. There is a likelihood that the pair will continue moving up, to the previous high of 1.1445. After this, the pair could start a new downward trend.