GBP tumbles as concerns on “Hard Brexit” deepens

FX traders will have woken up this morning stunned. The sterling plunged almost 6% to nearly 1.20 against the greenback before recovering to 1.24 area during early Asian trading hours. This is largest intraday drop in sterling since the EU referendum on 24th June this year. 

It seems that the plunge was triggered by the French President’s comments on Brexit last night. He demanded tough Brexit negotiations with the UK to avoid contagion amongst the rest of the EU members and as a steadfast commitment the fundamental principle of a single market. Britain must suffer the consequences of leaving the EU in order to save the institution from an existential crisis, he said on Thursday.  

But it is strange that the market waited for European and US market to close before these unusual movements kicked off. The drop could be a fast “snowball effect” triggered by panic selling and reinforced by stop loss orders and forced liquidation. 

Although prices have recovered more than half of its intraday losses, fundamental concerns over “Hard Brexit” will probably continue to weigh on the sterling in the near future. The Fibonacci retracement revealed an immediate resistance level at 1.2478 area and support level at 1.2320 area. 

Non-farm payrolls and US presidential debate in the spotlight

Cautious sentiment ahead of tonight’s non-farm payroll and shocks brought by sterling’s plunge has led Asian markets to open lower. 

If the Non-farm reading hits above 200k, the chance of a rate hike will be reinforced and the dollar will probably extend its gains. On the other hand, if the number falls below 150k, the opposite could happen. 

The second US Presidential debate between Clinton and Trump will be on TV this Sunday evening US time, or Monday morning Asia time. Heightening volatilities may return and the dollar index may experience choppy trading waters during the 90-minute live debate. 

At present, Clinton leads Trump by around 4 per cent according to the latest polling average. However, market could have partially priced-in the victory of Hilary Clinton too early, and thus sentiment will become more fragile if there are any surprises in the following second and third debates. 


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