British Pound Sharply Falls on Prospects of a No-Deal

Dear traders,

Friday’s disappointing U.S. employment data had little impact on the haven-linked U.S. dollar which largely underperformed. We decided not to trade Friday’s choppy movements in EUR/USD and GBP/USD and stayed on the sidelines.

Elsewhere, global equities aimed mostly higher as the world moved closer toward the first doses of a coronavirus vaccine.

The euro is eyeing the European Central Bank rate decision on Thursday where the ECB may increase bond-buying operations. Last week’s rise in EUR/USD took it to a high of 1.2177 and traders now wonder whether the ECB would intervene to weaken its currency. Generally speaking, the central bank is more likely to look at the euro’s value against the currencies of the EU’s major trading partners to evaluate the euro exchange rate. Nonetheless, bulls in the euro might be cautious ahead of the ECB decision, which is making a correction more likely in the next days.

What is expected from the ECB

No change in interest rates is expected but the central bank has hinted that it will ease monetary policy still further. An increase in its Pandemic Emergency Purchase Program (PEPP) of around 500 billion euro is the most likely level. Such action would normally weaken the currency but given the fact that these times are not normal, anything can happen.

EUR/USD Technical picture

On short-term time frames a double top-pattern could suggest upcoming bearish momentum, provided that the euro slips below 1.21. A lower target could be around 1.2040. However, if the euro rises back above 1.2180, gains may be extended until 1.22 but any bullish move could be on shaky grounds.

Brexit is the elephant in the room

The pound posted its largest decline in almost three months after Michel Barnier warned that Brexit talks could collapse in the next few hours. Optimism now turned to pessimism and sterling traders brace for a no-deal scenario.

GBP/USD Technical picture

The pound extended its gains until 1.3539 on Brexit optimism but now the facts count. In case of no deal, the pound will quickly erase its gains and could even fall towards 1.3050. The last important support was 1.34 early morning and now that the pound broke below 1.33, we will shift our focus to the 13220-00 support. On the upside we would need to see a rise back above 1.35 in order to encourage bulls for a run for 1.3580-1.36.

We went short this morning at 1.3370 and were able to book a good profit.