Pound traders are focusing on the psychological level of 1.21. If bears manage to eliminate this obstacle, then they will switch to lower levels - 1.20 and 1.1986. At this very spot, the market hit bottom after the Brexit referendum in June 2016. Any closing below may open the way to the value of 1.19.
The trend for the pound remains bearish, both in the short and in the medium term.
The pair's fall to a new low today contributed to the strengthening of disturbing rhetoric against Brexit. Boris Johnson reiterated that the May deal, in which there was a point about the border in Ireland and which failed three times in the British Parliament, no longer exists. The prime minister made it clear that he will not resume negotiations with the EU until Brussels changes its position on the issue of the border with Ireland. British Foreign Secretary Dominic Raab said that European officials are showing unprecedented stubbornness, while the British side wants a compromise solution and a deal. Aggressive Brexit is undesirable, but so far there is no other way out.
The current situation around the pound is extremely unstable. As in previous episodes three years ago after the referendum, the British currency is very sensitive to any headlines in Brexit's news feed. Transactions in the foreign exchange market amid moderately positive messages can be supported by the desire of traders to buy the pound at record low levels. However, the fall is now aggravated by the massive triggering of stop orders, as evidenced by the rather ragged dynamics of the GBP/USD pair during the Asian session. Several stages of pulling down quotes by 20 points per minute were recorded.
As for the EUR/GBP pair, it jumped 3.2% since Johnson's first comments as prime minister. Historically, the pair feels insecure at levels above 0.9000. Over the last decade, the euro in conjunction with the pound appeared in the area of 0.9200 only during periods of severe market turbulence. The focus of traders has quickly shifted from the British currency to the euro, which caused the pair to pull back as soon as market shocks gave way to long-term sterling purchases on downturns and a weaker single currency.
The fall of the pound was the reason for the growth of British stocks. Since the beginning of the week, the FTSE100 gained 2.2%, approaching annual highs. The rise in the index from Friday is 3.4%, which exceeds the scale of the weakening pound. It seems that stock markets are not yet very concerned about the long-term prognosis of the negative effects on the economy.
All the attention of the foreign exchange market, apparently, is on the side of the British currency. Except for its 2% fall from the beginning of the week, fluctuations in the main exchange rates look restrained. Traders prefer not to make unnecessary movements, and wait for further signals from the US Federal Reserve and the economy, as well as the possible results of trade negotiations.
The material has been provided by InstaForex Company - www.instaforex.com