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Pound: The biggest decliner

Market Analysis

EURGBP, H4

The pound has been coming under pressure against the G3 currencies, amongst others, both last week and today. However today, pound is the biggest decliner for a second consecutive session out of the main currencies, and while off its lows is still showing an average 0.4% decline versus the G3 currencies, as of the early European PM session. Brexit concerns are resurfacing. Bundesbank’s Dombret last week warned that UK hopes to use “equivalence rules” to maintain London as a platform for accessing EU financial markets would “not be a reliable substitute for passporting,” fanning fears of an exodus of financial firms from London over the coming years, both in physical terms and tax revenue terms. The formal exit negotiation from the EU will begin next month. An article in the UK Times highlighting that the UK PM is concerned that Scotland will call a referendum when the government triggers Article 50 to begin the formal process of leaving the EU, expected by the end of next month, has prompted selling of the pound. Scotland voted overwhelmingly to remain part for the EU in last year’s referendum, and the Scottish National Party has since been threatening a new referendum in the event of a “hard” Brexit, which the government is gunning for.

Brexit concerns, Scotland’s possible referendum and high EMU ESI economic confidence news today, lead cable on a route to a 20-day low at 1.2383, since settling back around the 50-day average. EURGBP has lifted to one-week highs. The 4 hour EURGBP chart has broken over the 50 period MA at 0.8491 and is gaining momentum. The short term MACD and RSI are both moving up and the parabolic SAR remains positive and suggest further upside.  Resistance to the upside would be a break of the 0.8555 and the 200 SMA.

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Andria Pichidi

Market Analyst

HotForex

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