In summary, we can say that it has been a very profitable trading day in a politically driven market. While the Brexit and Trump themes are market-dominating there is only one thing that matters to traders: The profit at the end of the trading day and yesterday’s profit was quite good. Sterling traders were able to generate a profit of 100 pips by our long entry and also euro traders did not go home empty-handed, pocketing a good gain by trading twice yesterday’s long entry.
What happened in the market? Two things came together. Firstly, the U.S. dollar has lost some of its strength after Donald Trump said that the dollar is already ‘too strong’, posing a challenge to the economy. This prompted investors to take profits on their long dollar positions. Secondly, U.K. Prime Minister Theresa May has calmed the markets as a ‘hard’ Brexit may not be as hard as expected. While she said that the U.K. “cannot possibly” remain within the European single market, pursuing a hard Brexit, May confirmed that the final deal would be put to the vote in Parliament. The fact that the parliament will approve the final Brexit deal is positive for sterling due to hopes that the deal must be good in order for the parliament to approve it.
The pound climbed to a high of 1.2415 following May’s speech. True to the motto “The trend is your friend”, there are chances that the pound may extend its recent gains to 1.25 provided that sterling is able to take the hurdle at 1.2430. However, after such a strong price movement we also anticipate corrections. A next support is now seen at 1.23. If the pound falls back below 1.2270 we expect a lower support to be at 1.22.
The U.K Labor Market report is scheduled for release today at 9:30 UTC and if wages confirm a steady growth, sterling bulls might push the cable to higher levels.
The euro formatted a recent uptrend channel and based on that channel, further gains may be limited to the upper trend line at 1.0730. We expect a next resistance area to be at 1.0750 whereas a current support is seen at 1.06.
Eurozone Consumer Prices are scheduled for release at 10:00 UTC today but we do not expect this report to have a significant impact on the euro.
The most important piece of economic data will be the U.S. Consumer Price report due for release at 13:30 UTC. In case the report comes in with an upside surprise the dollar will regain some strength.
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