Fibogroup Market Analysis 2017

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The British pound has enjoyed a good run against its US counterpart ever since rumors spread that the EU and the UK were close to reaching a deal on Brexit terms with some saying that a deal has already been reached on a settlement for the UK to leave the EU as well as favorable conditions for both parties to secure the Irish border.

Those rumors started to unravel today putting the pound under pressure as it is now as investors started to doubt that the border issue would be easily solved and added to that is the question of freedom of movement of UK and EU citizens which has hardly been mentioned and a solution looks increasingly unlikely before the deadline of December 15th

“This week’s sterling bounce on reports that the UK has accepted a higher financial divorce settlement with the EU seems based on the false assumption that the way is now clear for the European Council on 14-15 December to authorize moving on to the next phase of the Brexit process,” said Christopher Granville, managing director at investment research firm TS Lombard.

From a technical point of view we can see a few worrying signs emerging as the pound breaks through $1.35 with the formation of a double top which may also be a catalyst to push the pound lower firstly down to the $1.3370 formal support level and then even lower depending on how negotiations turn out.

 

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The British pound is pushing higher today as the market awaits the outcome of British Prime Minister Theresa Mays visit to Brussels to broker a deal on leaving the European Union.

Early indications coming out of the meeting suggest that the British PM has caved into demands from the EU about the border between Northern Ireland and Ireland which many had thought would be a major sticking point in negotiations.

This goes against what was said earlier in the day by Irish Minister for European Affairs Helen McEntee, who noted that there were still many unanswered questions about border control and until this is solved, things will be at a stalemate.

“I do not believe we are close to a breakthrough on the border question” the minister noted.

“It is absolutely impossible for us to allow the negotiations to move on to phase two when we don’t have an absolute concrete commitment form the U.K. government that we will not have a hard border on the island of Ireland,” she said.

By the time Prime minister may wraps up her meeting in Brussels, the pound could continue on its recent rally or come crashing down to earth as Brexit negotiations stall according to currency economist Lee Hardman from MUGF.

"If a green light is provided today for talks to move on to future relations, including a timely transition arrangement, it would open the door for further pound gains in the near-term," he said

"In contrast, the pound could weaken sharply if the EU still refuses to judge that sufficient progress has been made on divorce talks. (That) would increase the risk that Brexit talks will break down, and make a more disorderly Brexit outcome more likely." He added.

 

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The British pound is under further pressure today after yesterday’s disastrous outcome on talks between the UK and the EU on conditions for the former to leave the European Union.

At 1.04pm (GMT) the British currency was trading at $1.3416 after trading as high as $13538 in yesterday’s trading session.

Markit services PMI from the UK hit the market earlier today at 53.8, below analysts’ expectations for a figure of 55 and well down on last month’s figure of 55.6.

The news only added to the pounds woes from yesterday when investors were left in shock as Theresa May failed to reach an agreement with the EU on critical points including how they would handle the border issue between Ireland, which will remain a member of the EU and Northern Ireland, which is part of the UK.

In the event of a non-agreement, the market was expecting the pound to fall a lot further but it seems with support moving in this morning around the $134 mark, many believe that an a agreement will be forged later this week

“Sterling continues to nurse its bruises from the news from Brexit talks,” said Valentin Marinov from Credit Agricole.

“The price action in the currency markets may suggest that a constructive outcome from the negotiations is still possible.” He added.

These thoughts may be a little optimistic as many see the deadline for a deal to be reached is this Friday and if one is not done, the chances of further progress at the EU summit on December 14th look to be quit slim.

 

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The Australian dollar has dropped sharply in today's Asian trading session on the back of disappointing data and throws into question yesterday's assessment of the local economy from the reserve bank of Australia.

At 3.34pm(AEDT) the Aussie dollar was trading at US75.76c down from US76.09c in yesterday's trading session.

GDP figures released from Australia hit the market earlier today at 0.6 percent against analysts' predictions for a figure of 0.7 percent and was well down from the previous quarters figure of 0.9 percent.

The yearly figure also missed consensus coming in at 0.9 percent against estimations for a figure of 3 percent.

Australian treasurer Mr Morrison brushed off the disappointing figures by noting that the Australian economy was on equal footing with the rest of the world and overall it was a good result

"The solid growth outcome in the September quarter national accounts has accelerated growth from 1.9 per cent to 2.8 per cent through the year," Mr Morrison said.

"This is above the OECD average and puts Australia back up towards the top of the pack for major advanced economies around the world." He added.

Investors were not as upbeat as Mr Morrison and sold the Aussie dollar off accordingly which may be attributed to expectations of a rate hike at the RBA's next board meeting in February has now gone.

The Australian dollar was rightly sold off as it seems the RBA was overly optimistic yesterday on the state of the Australian economy as they would have to overlook several factors in order to lift interest rates such as low inflation and as was already mentioned, underperforming GDP.

These factors should weigh on the Australian dollar and we may see the currency come under further pressure as the year comes to a close.

 

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What started out as a promising double bottom for gold has quickly gone sour and now we can see a double top has formed and a bearish one at that. It seems that investors were reluctant to push the precious metal through the $1,300 mark just a week ago and since then gold has tumbled to around $1,250 at the time of writing this article.

A sustained break below this level in today’s trading session may see a move down to $1,250

The catalyst for the recent tumble has been optimism over tax reform in the US which has passed both houses of congress and just needs a few details to be sorted out before President Donald Trump signs it into law.

Another factor that will keep gold under pressure until at least next week is the rate decision from the US Federal Reserve who are widely expected to lift rates which is already priced into the market’

The danger for gold is that the following statement will contain news of further rate hikes which will be sooner than most expected and may also pressure the gold price.

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minor-latin">"Gold is testing critical long-term support at $1,260 in Asian trading," said Jeffrey Halley, senior market analyst at OANDA. "A break of this level opens up a potential 50-dollar move to $1,200 as gold suffers from investor flight to crypto currencies and the prospect of an FOMC rate hike next week with more to come in 2018."

The recognition by Donald Trump of Jerusalem as Israel’s capital city is likely to cause wide range instability in the Middle east and according who you listen to, could be come a serious problem or an outright catastrophe and such a scenario may see gold find some much needed support.

 

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The gold price is under further pressure today after being hammered over the last week and as we mentioned yesterday, any sustained break down through the $1,250 level may see a further decline to around $1,200.

The catalyst for this may the release of the nonfarm payrolls figure, unemployment rate and hourly earnings numbers from the US.

The hourly earnings figures will be of particular importance as the Non-Farm payrolls and unemployment rate have satisfied the fed for quite some time.

Last month we saw a reading of 0 percent and today the number expected by analysts is 0.3 percent and if they are correct or the number comes in on the upside gold may take real hit as this will clear the way for the Fed to once again raise rates at the start of next year.

The more the Fed raises rates the worse it is for gold as it is a Non-interest bearing investment and investors would rather hold US dollars as the return rises on the back of rate hikes.

“A rate hike is now looming and people are suddenly realizing that gold may not be the most attractive long position at the moment,” said David Govett, head of precious metals trading at Marex Spectron in London”

“People’s memories are short and their pockets not so deep.” He added.

If we see disappointing job figures out of the US today this may halt golds slide until at least next week when the interest rate decision is announced.

 

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The British pound is under further pressure today after last Fridays losses as investors brush off a deal struck over the weekend that set the stage for Brexit negotiations to continue.

The agreement reached over the weekend between the EU and the UK about the Irish border, divorce settlement and other things has now paved the way for talks to begin on a free trade agreement between the prospective parties and some now say the hard part has just begun.

“So much time has been devoted to the easier part of the task and now to negotiate a transition arrangement and the framework for our future relationship we have, de facto, less than a year," said European Council President Donald Tusk

For the time being, the uncertainty surrounding Brexit may sink into the background and as the year comes to an end it may be economic data that drives the sterling.

Of interest, will be the next moves from the bank of England starting with their policy meeting this week.

No changes in rates are expected so the following statement will be closely monitored to see when the central bank plans to tighten monetary policy in the nearest future.

“As negotiations continue in the background, Brexit fatigue may set in among investors, with more emphasis placed on the day-to-day data,” said Karen Ward, chief market strategist for Europe and the U.K. at JP Morgan Asset Management.

Another thing that may possibly destabilize the pound as the year finishes is an expected leadership challenge against Prime Minister Theresa May for the UK’s top Job with foreign minister Boris Johnson said to be waiting in the wings ready to pounce.

 

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It’s no secret that the US Federal Reserve is going to raise interest rates from 1.25 percent to 1.50 percent in tomorrow’s board meeting so what happens to the US dollar after this? Are we in for a rally or a pullback on some quick profit taking?

The Fed has now raised rates 5 times since 2015 and if we study the direction of the US dollar after each hike we can see that there is no clear pattern meaning that a rally or a retreat is possible after the rate decision.

One thing that may be different this time, is the rate decision coincides with some big policies from the Trump administration which in theory is supposed to further bolster the US economy which in turn should benefit the greenback.

One such policy is passing the tax legislation through congress which is seen as a great milestone for the US economy as some predict this will take some pressure of the Fed and they will be able keep to their agenda by raising rates at least 3 more times next year.

So the point is that we can safely say that a rate hike is already priced into the US dollar as we speak, so for the currency to push higher we need another trigger, so the fact that the main pillar of Trump’s policies, namely US tax reform which is certain to pass may just be the catalyst.

“Although we do not expect (Fed chair) Janet Yellen to overly modify her choice of judicious language, (President (Donald Trump‘s) ...tax cuts ... could feasibly allow far greater conviction in the speed with which policy normalization should proceed,” said Neil Mellor, senior currency strategist at BNY Mellon.

So with tax legislation certain to pass, a bullish statement on the US economy from the Fed may follow the rate decision which should see the US dollar benefit.

 

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After falling heavily for the last 2 weeks it appears gold may have found a temporary bottom and some news released from the US earlier today may be the catalyst for the precious metal to climb higher.

In a stunning upset, Republican candidate Roy More lost the once super safe senate seat in Alabama to democratic candidate Doug Jones which now throws into question the ability for US Donald Trump’s tax policy to be signed into law.

The Republicans can now only afford to lose 1 vote when the final ballot comes for tax reform and at this time ,there are 2 candidates who have reservations about voting for the tax bill unless some serious changes are made.

Gold has suffered immensely on the back of the proposed tax reform as it would greatly benefit the US dollar and history shows us that a strong greenback is more often than not, negative for gold.

If indeed the tax reform fails, we can expect a serious reversal in gold to the upside.

The short germ focus for gold will be today’s interest rate decision from the US Federal reserve followed by a monetary press statement.

A rate hike from 1.25 percent to 1.50 percent is already factored into the gold price so there will be no surprises there. All eyes will be on the following monetary statement and how many times the fed plans to lift rates next year.

It seems that the fed will be reluctant to spook the market to much before Christmas and may take a neutral tone with regards to the US economy and rates and we may see gold benefit as a result.

 

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old is on track today to rack up its second straight day of gains which ends a disastrous 2 weeks where the precious metal tumbled over $50.

The catalyst for the rise was yesterday’s Interest rate decision and monetary statement from the US Federal Reserve where as expected the Fed increased rates by 25 basis points. The rate hike was priced into the market well before yesterday’s decision but the following press conference caught investors by surprise.

Many had been predicting that the Fed would hike rates 4 more times next year but yesterday they hinted there would only be 3 more and some are starting to question this amount after 2 of the Federal board members voted against a rate hike on the back of persistently low inflation.

Gold is very sensitive to rate hikes and is seen as a strong hedge against low inflation.

“Gold moved up in its initial reaction because Fed is dovish in terms of a rate hike vision for 2018, and it sees only three rate hikes, not four,” said Naeem Aslam, chief market analyst at TF Global Markets in London.

Gold had been heavily subdued in the run up to this latest fed meeting and now that it’s over and unknowns such as how many rate hikes are out in the open we may see gold return to its recent rally.