STERLING GAINS AFTER A GOVERNMENT REPORT ON BREXIT
Sterling rose against the USD after a government report painted a dark picture of the country’s economy after Brexit. The report said that the deal proposed by Theresa May will shave about 4% from the country’s GDP. This model produced the best results compared to the other proposed models. A Canadian model would result in a 4.7% hit on the economy while leaving without a deal would lead to a 9.7% hit. In a statement shortly after the report was announced, Theresa May said that it was the best possible outcome for the country. According to an article in the Financial Times, she said:
“What the analysis shows, it does show that this deal that we have negotiated is the best deal for our jobs and our economy which delivers on the results of the referendum. This analysis does not show that we will be poorer in the future than we are today, no it doesn’t, it shows we will be better off with this deal”.
Later today, traders will receive another assessment from the Bank of England. Another one that will show the stress test of the country’s banks will also be released today.
Crude oil was largely unmoved today as traders continued to wait for the official US government data on inventories. Earlier today, the American Petroleum Institute (API) data showed that in the past week, inventories rose by more than 3.4 million barrels. This was higher than the previous week’s drawdown of 1.545 million barrels. In the past, there has been sharp divergences on the API number and that of the EIA. Another significant news came from Saudi Arabia, where its Minister of Energy said it will not be the only country to raise production. To avoid a confrontation with the US, OPEC is planning to leave production at the levels agreed during the 2016 OPEC meeting.
The US dollar gained after data from the Bureau of Labor Statistics showed that the economy expanded by 3.5% in the third quarter. This was in line with the first reading that was released a month ago, and lower than the 3.6% that traders were expecting. Corporate profits in the quarter were revised higher to 3.3%, which was higher than the consensus estimate of 2.0%. Real consumer spending on the other hand rose by 3.6% in the third quarter, which was lower than the previous reading of 4.0%. The Core Personal Consumption Expenditure (PCE) rose by 1.5% in the third quarter, which was lower than the previous release of 1.6%. The trade deficit widened to $77 billion, which was higher than the $76 billion traders were expecting. Later today, traders will listen to the Fed’s chair’s statement at the Economic Club of New York. They will also receive the home sales data for October.
The EUR/USD pair halted the decline started a week ago as traders waited for the statement by the Fed chair. This statement will come a day after he received sharp criticism by the US president. The pair is now trading at 1.1282, which is close to the two-week low. The 30-day and 15-day EMA indicator show that the pair could continue the downward trend. The RSI is currently at 43, which is a sign that the pair could move in either direction during the speech. This is confirmed by the momentum indicator, which is close to the neutral level of 100.
The GBP/USD pair rose to an intraday high of 1.2805 after a government report on Brexit. In the past few days, the pair has remained within a narrow range and has not defined a clear trend. On the four-hour chart, the pair’s price is below the 100-day and 50-day Exponential Moving Averages. The MACD continues to show that the pair could have more downward moves to make. However, this pair will continue being volatile as traders continue to weigh the news releases on Brexit.
The XBR/USD pair declined today ahead of the US inventory numbers. The pair reached an intraday low of 59.50. On the hourly chart below, it shows that the pair is trying to form a double bottom pattern along the 60 level. This could happen depending on how the meeting of the OPEC oil ministers will go. The RSI is currently at the 37 level headed downward. Therefore, while the sentiment on crude is low, the price will largely be influenced by the upcoming news releases.