Pound Under Pressure Amid Concerns About Hard Brexit

 | Jan 16, 2017 17:02

Originally published by AxiTrader h2 Markets Overview:/h2

  • Equities: Nikkei (-0.91 %), Hang Seng (-1.00 %), CSI 300 (-0.59 %), KOSPI (-0.56 %), ASX 200 (+0.48 %)
  • Commodities: WTI Crude Oil $52.49 (+0.23 %), Brent Crude $55.60 (+0.27 %), Natural Gas $3.45 (+0.99 %), Gold $1203.76 (+0.54 %), Copper $268.10 (-0.33 %)
h2 Summary:/h2
  • GBP plunges on fear of hard Brexit
  • Asian equity markets decline as risk appetite decreases
  • Precious metals rise; Dollar and Yen in demand amid risk-off
  • Busy week ahead with May speech, Trump, BoC, ECB
h2 What traders are talking about:/h2

Asian stock markets came under pressure overnight, as risk appetite decreased amid renewed Brexit worries and uncertainty about what the presidency of Donald Trump will bring. The Nikkei 225 fell 0.80 %, while the Hang Seng and China's CSI 300 lost more than 1 % on the day. Australia's S&P/ASX 200 was the exception, as it managed to close the day up almost 0.50 %.

The British Pound declined sharply at the Asia open, after a report from the British press that UK Prime Minister Theresa May will signal a hard Brexit in her speech this week. Such a plan would mean an exit from the European Union's single market for goods and services, which would then allow the UK to make trade deals with other countries and have better control over their borders and laws. The prime minister's office declined to comment on the report, but it seems very likely at this point that May will indeed announce a hard Brexit tomorrow.

GBP/USD opened around 1.20 in New Zealand, down almost 200 pips from Friday's close. It was able to recover slightly during the trading session (to a high of 1.2054) due to comments from Donald Trump who said that "UK is doing great after Brexit vote" and that "trade deal will be done quickly and properly". However, that alone is unlikely to comfort traders and investors a lot, and the Pound will remain under pressure into May's speech. Whatever the outcome, prepare yourself for high volatility in all GBP pairs tomorrow.

From a technical perspective, resistance is now seen at 1.2120 (Friday's low), followed by 1.22 (Friday's close). Major weekend gaps usually get filled within the same week, but it is unlikely that we will see that happen ahead of May's speech. To the downside, there is now little support until the October 6 low at 1.1841.