The UK’s big day has arrived at last. The letter from PM May to the EU to trigger Article 50 has been delivered with additional comments due today from the Prime Minister and perhaps other UK and European officials. This action kicks off formal Brexit negotiations with a two year deadline for reaching a deal. An initial official response from the EU is due within 48 hours.
Overnight Sterling continued the tumble that started yesterday after the Scottish Parliament voted to call for a second independence referendum for late 2018 or early 2019. The UK government stance is for no vote until after Brexit is complete. In the last few hours with the trigger approaching, Sterling has already been bouncing back and may remain active through the rest of the week.
With more details on the negotiating stances of both sides due over the next few days, both GBP and EUR could be impacted. Traders may look for indications of whether or not either side is willing to compromise, what they are looking for in a deal, if a transition agreement is possible and how big the bill for each side could be.
Stock markets have been on hold overnight awaiting Brexit news. The FTSE is down 0.2% while the Dax is up 0.3%. US index futures and the Nikkei are flat, holding on to yesterday’s gains.
With the exception of GBP, currency markets have been steady overnight. CAD is is slightly following a 0.5% gain in Brent and WTI oil prices. Last night the API reported a 2 mmbbl increase in US crude oil inventories down from about 5 mmbbls last week. Oil and related markets like gasoline, energy currencies and energy stocks may remain active through the morning with DOE inventory reports due at 1030 am EDT.
Chart Signals: Sterling rallies, Euro declines on Article 50 trigger
Trading in the last hour or so since the official triggering of Article 50 and the start of Brexit negotiations has decisively gone in favour of GBP at the expense of EUR. Sterling continues to bounce back from overnight weakness while EUR appears to have peaked for now. Indices are also mixed with the Germany 30 outperforming the UK 100 as is to be expected in light of the currency action. Meanwhile, it looks like yesterday’s bounce in US indices may be running out of gas already.
North American and European Indices
US 30 looks like its bounce has ended and downswing may be resuming. The RSI failed to regain 50 confirming downward momentum and the index has dropped from a lower high near 20,720 toward 20,660 with next potential support near 20,570 then 20,500 and the 50-day average.
US SPX 500 has paused near 2,355 having bounced up from 3,340 support but trading well short of 2,370-2,390 resistance. RSI sitting on 50 indicates a sideways consolidation trend emerging.
US NDAQ 100 has stalled near 5,400 short of 5,440 resistance. A lower high in the RSI indicates upward momentum weakening although higher lows in the index indicates continuing accumulation A sideways trading channel appears to be emerging between 5,305 and 5,435.
UK 100 has encountered resistance at a lower high near 7,380 and has dropped back to retest uptrend support near 7,320 with next tests near 7,300 then 7,264 a Fibonacci level. RSI testing 50 which could end in confirmation of the uptrend or a downturn signal.
Germany 30 broke out to a new high earlier today rallying up toward 12,230 but has since slumped back toward a retest of its 12,180 breakout point as support, forming a bearish shooting star candle. Next support possible near 12,100 with next measured resistance near 12,300. RSI breaking out of a downtrend confirms upward momentum increasing.
Gold has levelled off near $1,250 consolidating recent gains within a Fibonacci cluster. RSI flat near 60 indicates a pause within an uptrend. Initial resistance near $1,255 then the 200-day average near $1,260 with initial support possible near $1,242.
US Dollar Index is on the rebound, continuing its bounce up off of 99.00 but it still needs to retain 100.00 on the index and 50 on the RSI to suggest this is a significant upturn and not just a trading bounce.
USDJPY is consolidating recent declines between 110.60 and 111.30 a Fibonacci level having bounced up off support at the 110.00 round number. Next resistance possible near 111.60 with next downside support at a Fibonacci cluster near 109.20.
EURUSD is starting to roll over again, dropping back through a Fibonacci cluster near $1.0830, and then $1.0800 on its way back toward $1.0750 with next potential support near $1.0720 then the 50-day average near $1.0670. RSI falling back toward 50 suggests rally ending and a downturn pending.
EURGBP is turning downward again, falling from 0.8730 down through 0.8660 a Fibonacci level and on toward 0.8630 with next potential support near 0.8590 where the 50 and 200-day averages cluster then 0.8530.
GBPUSD is bouncing back from overnight weakness that saw it successfully test $1.2360 support and then rally back up into the $1.2420 to $1.2480 range with next resistance possible near $1.2500 then $1.2550.
USDCAD continues to encounter resistance at a lower high near $1.3400 while the RSI suggests upward momentum levelling off. Initial pullback support possible near $1.3355 then $1.3300 and $1.3260.
CADUSD appears to be forming a trading range between $0.7450 and $0.7530 having recently held the bottom and trading near $0.7475. RSI hovering just below 50 suggests sideways to slightly downward momentum. Next support in place near $0.7410 a Fibonacci level.