Sterling pressured ahead of Autumn statement

23 November, 2016

Sterling/Dollar struggled to maintain gains during trading on Tuesday with prices eventually sinking back towards 1.240 as the persistent hard Brexit anxieties dented buying sentiment towards the currency pair. It has become evident that Sterling remains trapped by the ongoing Brexit uncertainty, with the future of the post-Brexit UK economy haunting investor attraction. Monday’s mystery upsurge on the GBPUSD was unsustainable and simply acted as a firm foundation for bears to install heavy rounds of selling. If the Brexit uncertainties persist, Sterling weakness could be the new norm moving forward with steeper declines expected on the GBPUSD amid a strengthening Dollar.

Much attention may be directed towards the heavily anticipated Autumn Statement where Chancellor of the Exchequer Philip Hammond offers clarity on the state of the UK economy and discusses the government’s future spending plans. With the sensitive Brexit situation still a dominant theme in the markets, today’s Autumn Statement could provide a unique touch. If the economic forecasts for next year highlight the Brexit impacts and paint a gloomy picture, then Sterling could be exposed to further downside risks. On the other hand, an aggressive outlook pointing to a stronger economic recovery may recreate another mystery move on Sterling similar to Monday’s sharp upsurge.

When dissecting the Sterling/Dollar in a technical a fashion, this pair remains noticeable pressured on the daily timeframe. Prices are hovering above the daily 20 SMA while the MACD is unnaturally flat. Bears need to conquer the stubborn 1.240 support which should encourage another decline lower towards 1.220.

Stock markets charge into gains

A strong feeling of positivity dispersed across the financial markets on Tuesday after the Dow Jones closed above 19,000 for the first time in history. The combination of rising oil prices, the Trump effect and improving confidence towards the global economy may have revived investor risk appetite. Asian shares commenced Wednesday on a solid footing as optimism rose over the global economy tolerating higher US interest rates. European markets charged into gains on Tuesday and may be poised to open positive today by borrowing Asia’s bullish contagion. While these stock market gains are highly impressive, questions still linger over the sustainability of the rally in the event of falling oil prices and an imminent US rate increase.

Dollar still remains king

King Dollar has maintained dominance across the currency markets this week with the Dollar Index hovering around 14 year highs at 101.00 as expectations inflate over a US rate increase in December. The Fed funds have priced a shocking 100% probability of a US rate hike before year consequently making the Greenback a buyers dream. Much attention may be directed to the FOMC meeting minutes this evening which if hawkish should provide additional buying momentum for the Dollar. From a technical standpoint, the Dollar Index is heavily bullish on the daily timeframe with any depreciation in prices seen as a technical correction for bulls to send prices higher. Previous support around 100.50 could transform into a dynamic resistance for an incline higher towards 102.00.


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