Originally published by AxiTrader
- GBPUSD rate breaks below 1.2660 support level to hit fresh yearly low after Theresa May delays UK Parliament vote on draft Brexit deal
- Crude oil falls 3.1% on fading optimism over OPEC production cuts
This week was always shaping up as a pivotal one for the British pound, and news of a delayed Parliament Brexit vote sent the Sterling tumbling. The vote was due to be held in the UK Parliament on December 11th, but Prime Minister Theresa May saw the writing on the wall that she just didn’t have the required number of votes to get the draft-deal passed. May has indicated she is seeking to renegotiate the deal with her EU colleagues, but this too may hit a roadblock after European Council President Donald Tusk tweeted that he’s not looking to renegotiate.
So where does all this leave us? Well, with the current draft-deal unlikely to be approved by the UK Parliament, and with the EU apparently standing firm and not willing to renegotiate, something must give. What that exactly is remains to be seen, but it’s fair to say that the whole Brexit scenario is one giant mess at the moment, particularly as the exit-deadline of March 29, 2019 is fast approaching.
The political uncertainty over Brexit has played havoc with the British Pound, with the currency breaking below key support at 1.2660 which opens the door to further downside risk in the days ahead. The GBP/USD rate hit a new low for the year at 1.2507, though it has since staged a recovery of sorts to reclaim 1.2550, but as the below chart shows the momentum is pointing south.
Previous support at 1.2660 is likely to now act as a resistance level and could come into play depending on the size of any potential bounce-back from here. It’s understandable that Sterling fell on the news today, but its worth keeping in mind that there are still some scenarios that could develop which would help the currency to recover. So, while the immediate risk is to the downside, the Brexit situation remains volatile and could produce sharp moves higher depending upon what plays out on the political stage.
Elsewhere in the currency markets, the US dollar had a solid start to the week with the currency finding some bids ahead of the inflation data due in the coming days. The EUR/USD drifted 0.2% lower with the euro softer on Brexit concerns, while the greenback also gained half a percent against the yen and Canadian dollar.
The Australian dollar continued to trade lethargically having broken below 3 levels of support last week. The Aussie is struggling to get a foothold back above the 0.72 level with equity and commodity market weakness subduing demand for the risk-sensitive currency.
Crude oil was unable to sustain its upward move following the OPEC production cuts with the price of US WTI oil settling 3.1% lower at US$51 per barrel. While OPEC and Russia did agree to cut production by a combined 1.2 million barrels per day in H1 2019, this was on the lower end of estimates and there is scepticism that these measures will do enough to address the current state of oversupply in the oil market.
On Wall Street, the DJIA index was down over 500 points at one stage with investors still unnerved by global growth and trade tensions, while the Brexit also saw risk aversion rise. But heading into the last hour of trade, the major US indices had rebounded well off the session lows.
Overall, the theme of volatility continued as evidenced by a rise in the VIX to above the 25 level. Traders will be awaiting any further developments on the Brexit front, while on the economic calendar we have US PPI data due, which could shift the conversation back towards the interest rate outlook ahead of the upcoming December meeting by the FOMC.