March 29th Morning Brief – Article 50 of Brexit Ahead
Arslan Butt • 3 min read
The big day has finally arrived. The UK is expected to trigger Article 50 of the Lisbon Treaty. Once Article 50 is triggered, it's likely to be a 2-year process for the UK to fully leave the European Union.
As discussed in our previous update regarding Article 50, it's hard to say how Article 50 will impact the UK and the Sterling. But I do know that it seems best to stay away from the UK economy and currency. As we know, the financial market demonstrates herding behavior, so most investors are likely to ignore the Sterling. Consequently, the pound is expected to stay bearish. That's why the GBP/USD shed into losses and fell by more than 200 pips in a single day.
The U.S dollar has regained its appeal as uncertain investors started switching their investments from the Sterling to the dollar. Yesterday, the U.S dollar index gained 0.47% to trade at $99.69 but remained below the psychological $100 level. The bullishness in the dollar seems to be happening for three reasons:
- Remarkable CB Consumer Confidence
- A bullish trendline in the U.S dollar index
- The Uncertainty in the U.K Markets
Top Macroeconomic Events Today
- Net Lending to Individuals m/m (9:30)
- FOMC Member Evans Speaks (14:20)
- Pending Home Sales m/m (15:00)
- Crude Oil Inventories (15:30)
EUR/USD – The Most Traded Currency Pair
Yesterday, the EUR/USD plunged more than 70 pips to trade at $1.0815. No surprise there, as the plunge was expected. Let us recall my previous live market update entitled, EUR/USD Doing Well, What’s Next?
The prices dropped to fill the weekend gap in EUR/USD. This only became possible due to the stronger dollar. Though we aren't expecting any major economic event from the Eurozone, Article 50 of Brexit is likely to shake the single Euro along with the Sterling.
EURUSD Hourly Chart
In the 4 – hour chart, the EUR/USD has just completed a 61.8% Fibonacci retracement at $1.08150. Interestingly, that is the same level where the market filled the gap. What's even more surprising is the 50 periods EMA, which is extending support for the major currency pair at $1.0790.
Undoubtedly, technicals are signaling to buy the EUR/USD, but in my opinion, it's better to wait for the real action likely to be caused by Article 50.
GBP/USD – A Celebrity of The Day
The United Kingdom is constantly in the spotlight due to ongoing political tensions. The market hasn't absorbed Brexit fully and we are hearing about Scottish First Minister Nicola Sturgeon's plans for a second independence referendum in late 2018/early 2019, carried by 69 votes in support and 59 votes against.
In addition, Article 50 of Brexit is jolting the Pound against peer currencies. Consequently, we are seeing renewed selling bias weighing the GBP/USD pair. Refer to our recent update (D) B-Day Is Here to understand more about the event. In the meantime, let me highlight technical sides of the pair.
GBPUSD 4-Hour Chart
GBP/USD is signaling a strong bearish momentum in the 4 – hour chart. I'm specifically paying attention to the bearish candlestick pattern "three black crows". This pattern forms when we see three selling candles followed by a strong bullish trend, demonstrating exhausted buyers and the entry of fresh sellers into the market.
Additionally, the pair has crossed below 50 periods EMA after breaking an ascending trendline at $1.2460. The RSI (at 36) is extending further support to the selling bias.
Traders, I wouldn't recommend a trading signal here because the market is likely to remain highly volatile in an unpredictable manner. On the other hand, we may not see much movement, everything is possible.
Let's stay safe traders!