The dollar has risen in early-week trade, supported by favourable yield differentials following the U.S. jobs report on Friday. The data showed a 0.4% spike in earnings, re-energizing expectations for further Fed rate hikes, which had been subdued somewhat following last week’s less hawkish than expected December FOMC minutes. USD-JPY lifted to a three-session high of 117.53, extending the recovery from the three-week low seen at 115.07 last Thursday. EUR-USD ebbed to a two-session low of 1.0516.
Sterling was the biggest mover, tumbling by about 0.8% versus the dollar to a low of 1.2178, the weakest level seen since last October after extending Friday’s 1%-plus decline. Pound selling was seen today in response to remarks from PM May, who said over the weekend that the UK would leave the EU’s single market and pursue a “bespoke deal” which has been taken very negatively. The worry for investors here is the time lag between giving up free access to the EU’s internal market and establishing new trading terms, and the uncertainty about what those terms will eventually be. The Norwegian PM said last week that she feared a “very hard Brexit” as new trading arrangements will take a long time to be agreed on, not least due to the UK’s limited negotiation capacity after years of EU membership. This follows remarks by Sir Ivan Rogers that “serious multilateral negotiation experience is in short supply,” which he made in his resignation from the post of ambassador to the EU last week. There are also signs of tensions within the UK government and the civil service.
The move down to below 1.2200 has triggered a SHORT position entry at 1.2180 with Target 1 at the 14 DATR and the recent lows of 1.2080, but with the Bollinger Band low at 1.2060, Target 2 is at the psychological 1.2000. Following a brief whipsaw to the upside on Thursday when the pair broke 1.2400, the Parabolic SAR reverted to the negative side today, MACD and RSI also suggest further weakness, although at 37 the RSI is suggesting caution.
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