Pound Drops On Risks Of Hard Brexit But Sideways Trading-Range Remains Intact
Heading into the final trading days of 2017, volatility is expected to remain low in the run-up to the Christmas holiday. There are no significant drivers or market-moving data releases on the economic calendar which is why we recommend taking a cautious approach to new investments now.
The British pound fell to a low of 1.3301 last Friday on risks of a hard Brexit. The second phase of Brexit negotiations between the U.K. and EU will be even harder than the first and investors are skeptical that U.K. Prime Minister Theresa May will achieve a soft landing when U.K. leaves the EU in 2019.
While we currently favor a sideways trading range between 1.3480 and 1.3280 the risk appears to be tilted to the downside. If the pound falls below 1.3260 we expect further losses towards 1.32. However, even if larger movements are unlikely given the liquidity drain, traders should always expect the unexpected.
EUR/USD: The euro was little changed with the crucial support at 1.17 remaining intact. As long as the euro trades between 1.1920 and 1.17/1.1660 there is nothing new to report.
The economic calendar is relatively quiet this week. The U.S. GDP report (Thursday) may receive some attraction even though no surprises are expected. Traders may also keep an eye on the PCE Index and Durable Goods Orders (Friday) but all these reports might be of less importance as the year draws to a close.
Sterling traders may listen to comments from Bank of England Governor Mark Carney on Wednesday when he speaks at a Parliament Hearing in London.
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