Sterling falls after EU launches legal action against UK

The British pound declined today as the European Union moved to file a lawsuit against the United Kingdom over the Internal Market Bill. The bill, which passed the House of Commons this week, will seek to override some parts of the Brexit divorce treaty that the UK signed. In a statement, European Commission president, Ursula von der Leyen said that suit was because the UK had failed to remove the problematic parts in the bill by yesterday. Still, the bill faces challenges in the upper house where Boris Johnson’s party lacks a majority. The pound also declined because of the weak manufacturing PMI data from the UK. The PMI declined to 54.1 in September from the previous 55.2.

The euro rose slightly against the dollar as traders reacted to the strong manufacturing and PPI data from the European Union. According to Markit, the manufacturing PMI rose to 53.7 in September from 51.7 in the previous month. The figure was in line with what analysts were expecting and is a sign that the manufacturing sector is doing well. Further data by Eurostat showed that the producer price index rose to -2.5% in August from the previous months -3.1%. These numbers show that the Eurozone economy is making progress. 

Global stocks rose today as traders remained optimistic that Democrats and the White House will reach a new stimulus deal. Democrats have suggested a $2.2 trillion package that will include cheques to individuals and states. The White House, on the other hand, has proposed more than $1.5 trillion that will also have cheques to individuals. The White House proposal also includes another package to help airlines. The biggest airlines in the country have said that they will shed more than 32,000 jobs without aid. In Europe, the FTSE 100 rose by almost 1% while the CAC 40 rose by 0.65%. In the United States, Dow Jones and S&P 500 futures rose by 0.80% and 0.90%, respectively.

EUR/USD

The EUR/USD pair rose to an intraday high of 1.1760. The four-hour chart shows that the price has found significant resistance at the current level. It has also moved above the 25-day exponential moving averages. The RSI has also continued to rise. Therefore, the pair is likely to breakout higher as bulls aim for the next resistance at 1.1800. However, a move below this week’s low of 1.1683 will invalidate this prediction.

GBP/USD

The GBP/USD pair pulled back after the EU launched legal action against the UK. The pair fell from a high of 1.2948 to the current level of 1.2815. On the four-hour chart, the current price is slightly above the lowest level yesterday. It is also slightly below the 50% Fibonacci retracement level. Still, the price is between the 1.2678 and 1.3000 channel. Therefore, in the near term, the price is likely to remain in this channel as traders wait for the results of the ongoing Brexit talks.

NZD/USD

The NZD/USD pair rose to an intraday high of 1.3367 today. This was the highest the pair has reached since September 22. On the four-hour chart, the price is above the 50-day and 25-day exponential moving averages. The signal and main line of the MACD have also moved above the neutral line. Therefore, the pair is likely to continue rising as bulls aim for the next resistance at 1.3400.