According to the Reuters, the USD inched higher on Tuesday amid no economic data released for the Greenback. The USD recovered against the GBP and the EUR, which many investors say may be a forerunner to the three-weeks of risk packed events for the over $ trillion daily currency market. The EUR/USD started the day at 1.0620, scaled to 1.0675 and then went down to as low as 1.0567 as Draghi, ECB president, started to testify in Brussels. The GBP/USD experienced a bigger swing as it began the day at 1.2466, scaled to 1.2530 and then went down at the close of the European conference to 1.2387. This afternoon, the FMOC members, Powell and Dudley will give their speeches on the US consumer figures and the GDP second release.
The stalling pound
The GDP is expected to increase from the previous 2.9% to 3.0% and the consumer confidence is projected to rise from previous 98.6 to 101.3. As seen on Monday, the USD is showing some signs of turning back on its strong run after the recent break. If speeches and figures are seen positive to the market, the USD will start making bigger gains once again.
With the fiscal boost for the U.S economy next year as promised by Trump, USD has troughed and peaked since Thanksgiving holiday on Thursday and the dominant tone on various profit-taking since the November eighth election. In the CMC markets yesterday, the GBP was one of the weakest major currencies during the European session. This was due to the negative Brexit related news and lack of positive economic data. Currently, the British influence is challenging article 50 that it may force the UK government to prompt article 127 of the European Economic Area. In short, the article 50 shows the steps in which a given country must undertake to withdraw itself from the European Union. While, article 127 of the European Economic Area details the steps any county in the European Union must go through to leave the single market. If one article is triggered without the other, it would mean the UK will still be bound to a single market and have to allow the free movement of people from countries within the European Union. Based on the statement released on Tuesday by the Organisation for Economic and Development, Brexit is going to make the British economy to slow down less than it was originally anticipated.
However, some investors are argue that the long-term relationship between the pound and the dollar is kicking back based on how the USD rallied in the past few months, while others argue that the currency market has come so far to account for the risks related the planned departure of the Britain from the European union. So, if the UK economy continues to ignore the expectations for an obvious slowdown in growth in the years to come, it will create a scenario for the pound to reverse further.
According to Mario Draghi, the European Central Bank, the Euro-Zone economy shows some resilient despite the uncertainty from political and economic environment. He said that the inflation has gradually edged up and the monetary stimulus from European Central Bank is the key ingredient to the current recovery. However, was much unclear about the global economy in general, arguing that the economy is expected to recover slower than before the last global financial crisis. When question about how the Brexit would affect the future of the Euro-Zone, he said that it would be hard to make any assumption at the moment without knowing the details of how the negotiation will be handled. So, to handle uncertainty, the negotiation must be clear and start as soon as possible.
The most crowded trades in the CMC markets are the EUR/USD and USD/JPY. Both had early profit taking as they regained lost ground, but remained off their session lows. This suggests that the certainty of the market has reached an inflation point and is now playing the waiting game on economic and political outcome. For instance, the politics in France and Italy are expected bring in some uncertainty in the Euro-Zone market in the short-term. Investors should be cautious about trading these pairs because the Euro-Zone market is becoming more volatile.