Many wondered yesterday what happened to the pound as it jumped more than 150 pips after falling to a weekly low of 1.3220. The high volatility was triggered by reports that the U.K. and E.U. have agreed a deal over the U.K.’s Brexit divorce bill, achieving a breakthrough in Brexit talks. The pound experienced high volatile swings in the wake of these reports and, unfortunately, some of our yesterday’s trades became victims of high volatility.
The GBP/USD could now head for a test of the 1.34-threshold and if the 1.3450-level is breached on the upside we could see sterling rallying towards 1.36. As for the bears, the bearish momentum came to an abrupt end yesterday and it will be difficult to only focus on the technical picture as the pound is mainly affected by Brexit talks.
The EUR/USD traded lower and that bearish bias can be attributed primarily to the demand for U.S. dollars. The Senate tax cut proposal advanced out of committee and toward a floor vote. With the tax reform moving closer towards realization we expect the greenback to receive a further boost. Ongoing concerns about North Korea however, seem to play a minor role for the dollar.
The single currency faces a crucial support around 1.18 and if this barrier gives way to fresh bearish momentum we could see the euro falling back towards 1.1720. If 1.18 however holds, we anticipate a potential run for 1.20.
What will be important today?
The German Consumer Price Index will be release at 13:00 UTC but this report is not expected to have a major impact on the euro. From the U.S. we have revisions to the third quarter GDP scheduled for release at 13:30 UTC followed by Yellen’s appearance before the Congress at 15:00 UTC.
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