US Session Forex Brief, March 20 – GBP Dives on Brexit Extension While the Rest of the Market Awaits the FED
Skerdian Meta • 4 min read
The main movers today until abut two hours ago were the Commodity Dollars and the JPY. The Iron Ore prices lost considerable ground today and they’re still falling, which has hurt the Aussie, as Australia is a large exporter of raw materials and this adds up with the closing of the China Dalian port for Australian coal. That also pulled the Kiwi lower, but they have recuperated last night’s losses while Iron Ore is still declining.
Although, in the last couple of hours the GBP has taken the flag as the biggest mover so far today. GBP/USD has been bearish all morning today, losing around 50 pips, but then the comments regarding another Brexit extension came and this pair lost another 100 pips. The EU gave the UK two options for another Brexit extension, one until May 23 which would be a short extension, and the other until the end of the year, which would require the UK to hold European elections in Britain one last time. But, Theresa May asked for an extension until June 30, so things look a bit complicated now, hence the decline in the GBP pairs.
Although, the rest of the market is not minding the price action in the GBP. Most assets have been sort of quiet as we head towards the FED meeting this evening. The FED is expected to keep interest rates on hold today but the statement and the press conference is what’s keeping traders weary. We have been seeing some run for safety in the European session with USD/JPY and EUR/CHF retreating lower as well as the stock market. So, it seems that traders are stepping back as we approach the FED meeting.
- German PPI – Producer price inflation turned positive again in January in Germany after the 0.4% decline in December, which was probably due to falling Oil prices during Q4 of last year. Today’s report which is for February was expected to show a 0.2% increase last month, but the actual number came at -0.1%, so back into negative territory.
- EU Might Hold Another Summit Next Week – Tomorrow starts the first EU economic summit for the year, which will continue over the weekend but Bloomberg reported this morning, citing an EU official that the EU might hold another extra summit next week to accommodate UK’s request for another Brexit extension. The source also added that the EU will not ask for a second Brexit referendum.
- UK CPI Inflation Report – Headline inflation has been declining in the last several months in Britain while core CPI has remained stable at 1.9%. Although, the decline was expected to stop today and it did. CPI ticked higher to 1.9% beating expectations but the core CPI ticked lower to 1.8% which balanced each other. Although, the house price index also took a turn lower declining from 2.5% in December which was revised lower to 2.2% today, to 1.7% in January. Although, I’m sure Londoners will appreciate this slowdown in the house prices as they have been increasing like crazy for many years after the effects of the 2008 crisis wore out.
- EU Uncertain About A Brexit Extension to June 30 – Reuters reported a while ago citing an EU document that a Brexit extension to 30 June would be legally and politically difficult. The EU gave two options to Britain, one delaying Brexit until before 23 May or the second option until the end of 2019. “Any extension… should either last until 23 May or should be significantly longer and require EU election to be held in the UK on 23 March.
The US Session
- May Wants a Brexit Extension Until June 30 – The UK Prime Minister Theresa May commented earlier saying that she has written to the EU seeking Brexit extension to 30 June. Government is not prepared to delay Brexit any further than 30 June and intends to bring forward proposals for third meaningful vote. The UK policy remains to leave the EU in an orderly way. We all hope so, but they have made a mess for themselves.
- US CBI Industrial Order Expectations – The CBI industrial order expectations have been declining in recent months and in January it fell into negative territory. But it turned back to positive in February increasing to 6 points. This month, this indicator was expected to soften again and fall to 3 points, but it softened more than expected, declining to just 1 point.
- May’s Spokesman Speaking – Theresa May’s spokesman spoke just a while ago, saying that the Prime Minister wants to bring the 3rd meaningful vote as soon as possible. There are no plans to extend implementation phase. It is up to the Parliament Speaker to determine whether we have come up with something substantially different for a new vote. But the Prime Minister believes that a long extension is not the way to go. But the French Foreign Minister said after him that if May cannot offer guarantees that Brexit deal will be passed, extension to be turned down.
- FED Meeting – The FED meeting will take place in the evening today. They are widely anticipated to keep interest rates on hold again at 2.50% this time. But traders will be interested to hear whether the FED sees the picture more hawkish now that the weak winter period in the US economy seems to be wearing off. But, no one is taking any sides just yet.
- The bullish move is complete
- Stochastic is almost overbought
- The 100 SMA is providing resistance
The 100 SMA is providing resistance on top
We went short on AUD/USD a while ago based on the H1 chart. The price had recuperated well after the decline during the Asian session and the 50 SMA was providing resistance on that time-frame. But the price has climbed 10 pips higher since then, although it is now finding resistance at the 100 SMA (red) on the H4 chart. Stochastic is almost overbought now so the bullish move is almost complete.
The volatile price action in GBP pairs continues as I write with GBP/USD having declined nearly 150 pips earlier but has now recuperated 60 pips. Although, the rest of the markets continue to be slow as we head into the FED meeting which will be held an hour earlier for those who don’t live in the Americas due to the clock change in America two weeks ago.