Trump-Effect Is Roiling The Markets
The British pound rose sharply against the U.S. dollar on news that the government cannot trigger Article 50 without parliament involvement. This announcement boosted speculation that the U.K’s exit from the EU may be delayed or softened by the parliamentary process. However, the Brexit process is far from over, so the pound remains vulnerable to losses.
The focus now shifts to the Bank of England’s Inflation Report due at 12:00 UTC. Sterling’s depreciation has helped push inflation expectations to their highest in nearly three years and this upbeat inflation outlook could damp BoE rate cut chances. So if the report lacks a cautious tone, we might see further gains in the GBP/USD. In the other case, if the central bank lowers its economic forecasts, the pound could drop towards 1.2230.
Apart from the major risk events for sterling traders, politics recently dominated the financial markets and it is the Trump-effect that dissuades investors from being long dollars ahead of the U.S. presidential elections. Subsequently, the euro and British pound rise towards higher levels and overcome almost every hurdle on their way up.
Financial markets remember precisely what happened the day of U.K.s June referendum when many investors were caught on the wrong foot and the Brexit camp emerged triumphant. This time, investors don’t ever want to be caught off guard again and that is why large investors are taking no risk while gamblers are putting their money on Trump.
The Fed’s statement faded into the background and while the chances shifted up to an 80 percent probability of a rate hike next month, the U.S. dollar had no strength to rally – at least for the time being. The EUR/USD climbed above 1.11 and tested the 1.1120-resistance zone. As stated in yesterday’s analysis a break above 1.1150 could drive the pair even higher towards 1.1240. From the U.S. we have the ISM Non-Manufacturing Index scheduled for release at 14:00 UTC and any disappointment should increase the pressure on the U.S. dollar.
Here are our daily signal alerts:
EUR/USD Long at 1.1130 SL 25 TP 20, 40 Short at 1.1080 SL 25 TP 25, 50
GBP/USD Long at 1.2370 SL 25 TP 30, 50 Short at 1.2270 SL 25 TP 20, 40
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