As we jokingly mocked the sterling-trading algos yesterday ahead of today’s “big” Phase 1 Brexit announcement, the market had gotten too far ahead of itself in its exuberance that today’s announcement was the final Brexit catalyst, when in reality it only sets the stage for the far more complex, trade-focused Phase II. As a result, and as we expected, GBP/USD had dropped 0.2% following a “sell the news” reversal which sent cable to multi-month highs. It then dropped even more, sliding 0.4% to 1.3420 after EU officials said it’s not realistic to expect a trade deal with the U.K. by March 2019.
Echoing our sentiment, Valentin Marinov, head of G-10 FX research at Credit Agricole CIB said the drop in the pound after an EU official said it was not realistic to expect a U.K. trade deal by March 2019 “highlights that people may have gone a bit ahead of themselves buying the pound.” The official’s comments “should not come as a huge surprise given the complexity of the upcoming discussions and the need for a transitional period after March 2019”
As Bloomberg then adds, sentiment was fragile even before the headline came out as profit-taking dictated price action soon after the deal announcement. As a result, strong support is not expected until 1.3320-23, which is Thursday’s low and the 21-DMA. Meanwhile, a Europe-based trader said range-seeking accounts faded the dip near 1.3420.
In short: for one of the clearest demonstrations of “buy the rumor, sell the news” look no further than the GBPUSD chart below:
Leave A Comment