Sterling erases yesterday’s gains after Attorney General caution

After yesterday’s surge, the sterling dropped sharply today after a legal opinion published by the attorney general. In a statement, Geoffrey Cox said that the risk of Britain remaining trapped in a backstop to avoid a hard border remained unchanged. Yesterday, Theresa May received a commitment from EU’s Juncker that the country will have the power to make its own decisions regarding the customs union. The opinion today lowers the chances that the prime minister will receive the necessary votes on her Brexit deal. Most importantly, it isolates the Tory Eurosceptics and democratic unionist MPs. In the note, he said:

However, the legal risk remains unchanged that if through no such demonstrable failure of either
party, but simply because of intractable differences, that situation does arise, the United Kingdom would have, at least while the fundamental circumstances remained the same, no internationally
lawful means of exiting the Protocol’s arrangements, save by agreement.

The note came after the country released better-than-expected economic numbers. In January, the construction sector grew by 1.8%, which was higher than the expected decline of -0.3%. At the same time, the economy expanded by a MoM rate of 0.5%, which was higher than the previously-released -0.4%. Industrial production contracted by -0.9%, which was better than the estimated -1.3%. Manufacturing production rose by 0.8%, which was higher than the consensus estimates of 0.2% While these numbers were better than expectations, they remain significantly lower because of the impasse caused by Brexit.

The USD weakened against the major peers after the US released weaker-than-expected inflation numbers. In February, consumer prices rose by an annualized rate of 1.5%, which was lower than the expected 1.6%. On a MoM basis, the prices rose by just 0.2%. The core CPI, which excludes the volatile food and energy products rose by an annualized rate of 2.1%, which was lower than the expected 2.2%. The real earnings declined by -0.1%, which was lower than January’s growth of 0.1%. The weak inflation growth coupled with the weak jobs numbers will likely reinforce the Federal Reserve’s commitment to pause on interest rate hikes.

On the Ethiopian airlines crash, more airlines continued grounding their 737-Max. Today, Singapore and Australian airlines joined their Ethiopian, Chinese and Cayman counterparts in grounding the jet. At the same time, the FAA released a statement standing by the airworthiness of the plane. The agency said that while the crash was similar to that of Lion Air, it had not received data to draw a conclusion on the plane. As a result of this, Boeing stock declined by more than 4% in premarket trading.

EUR/USD

The EUR/USD rose today after the weak inflation data. The pair rose to a high of 1.1285, which is slightly above the 38.2% Fibonacci Retracement level. This price is above the 21-day and 42-day moving average while the on-balance volume has been quite stagnant and the momentum indicator remains above the 100 level. The pair could continue the upward trend to test the 50% Fibonacci Retracement level of 1.1300.

GBP/USD

The GBP/USD pair declined sharply to a low of 1.3000 and successfully pared the gains made yesterday. On the hourly chart, the pair is below the 42-day and 100-day moving averages, while ATR has climbed to the highest level in months. This is a sign of increased volatility of the pair. The RSI has also fallen sharply and the parabolic SAR remains above the price. The pair will likely continue being volatile as the Brexit deadline nears.

XAU/USD

The XAU/USD pair rose today after weak inflation data from the US. The pair reached a high of 1300, which it last reached yesterday. On the four-hour chart, the pair is moving to the upper line of the Bollinger Bands while the momentum indicator remains above the 100 level and the RSI remains at the neutral level of 55. The pair could continue moving up, although this will depend on how the dollar trades.