Sterling rallies as investors hope for a Brexit extension

The sterling continued the rally started yesterday as hopes of a Brexit deadline extension rose. Investors believe that the two biggest parties in parliament will vote to accept a proposal by Labor leader Jeremy Corbyn to extend the March 29 deadline. This extension would give the government more time to find a consensus on the key issues. However, this approach could find opposition from the European Union, which is scheduled to have an election in May. It could also prove meaningless if the divisions in parliament remain. This came after it was revealed that most companies in the UK are not prepared for a no-Brexit deal.

The Japanese yen weakened today after the BOJ released its first interest rates decision of the year. As expected, the bank left interest rates unchanged at minus 0.1%. The bank also lowered the inflation target for the year. This was the second time in the past three months that the bank has lowered this target. Recent data show that the country is battling with a low rate of inflation even as the labor market has tightened. The reason for this is that most people from Japan tend to work for a single company for years. As a result, the lack of competition in the workforce helps keep the wages stagnant. Also, most people in Japan are not very keen on spending.

The New Zealand dollar rose today after positive inflation data from the country. In the fourth quarter, consumer prices rose by an annualized rate of 1.9%. This growth was similar to that of the third quarter but higher than the consensus estimates of 1.8%. On a QoQ basis, the CPI rose by 0.1%. Meanwhile, in Canada, retail sales for November declined by a larger margin than investors were expecting. The headline retail sales number declined by minus 0.9% while the core retail sales declined by minus 0.6%.

GBP/USD

The sterling continued the upward momentum started on January 3 when the pair was trading at the 1.2425 level. Today, it reached an intraday high of 1.3030 as investors’ optimism over Brexit rose. On the four-hour chart, the pair’s price is higher than the 21-day and 42-day EMA. The price is also above the 61.2% Fibonacci Retracement level. In addition, the ADX appears to be rising after hitting a low of 22 while the RSI is close to the overbought level. There is a likelihood that the pair will continue moving up based on the reading of the technical indicators.

NZD/USD

The NZD/USD pair extended the gains, reaching an intraday high of 0.6797. The reason for the gains was the positive inflation data, that beat the consensus estimate. On the hourly chart, the pair’s price is above all the important moving averages. At the same time, the ADX has reached a weekly high of 27 while the Relative Vigor Index (RVI) too has been moving up. The pair’s current price is above the 61.8% Fibonacci Retracement level. This means that it could continue moving up to test the important level of 0.6850.

USD/JPY

The USD/JPY pair rose today after the dovish statement by the BOJ. The pair reached an intraday high of 109.83. On the hourly chart, the pair’s price is closer to the 21-day EMA and slightly higher than the 42-day EMA. The pair also appears to have found resistance along this level, which is also closer to the 38.2% Fibonacci Retracement level. If the pair moves up, it will likely test the 50% Fibonacci Retracement level of 110.30.