The European Union Council President Donald Tusk was in focus during Friday’s trading session as he shared the draft guidelines on the future of the UK relationship after Brexit. Although the European Union is willing to discuss with Britain the future of free trade deals before the two parties officially agree on the terms of Brexit, a divorce settlement must first be in place. The visible fact that the EU leaders have rejected Theresa May’s demand for parallel talks and her Brexit timetable continues to suggest that the European Union may be willing to play hardball.
With many in the bloc also insisting that the UK must fulfill its financial obligations by paying the 50 billion Brexit bill, there may be some obstacles in the road ahead. Although Tusk stated that the EU will not punish the UK in the Brexit talks, this may only be the case if the UK follows the rules put in place by the bloc. Now that the UK is on the other side of the negotiation table, markets will be observing how Theresa May responds with any complications rekindling the hard Brexit fears.
Sterling was under pressure during Friday’s trading session as investors digested the European Union’s draft guidelines. Although UK GDP was confirmed at 0.7% in the final quarter of 2016, this had no real impact on sterling with investors focusing on the Brexit developments. While the pound may be on route for its first quarterly gain against the greenback since June 2015, a vulnerable dollar played a key part. From a technical standpoint, weakness below 1.2400 could encourage a further decline towards 1.2300.
Currency spotlight – EUR/USD
The EUR/USD was under renewed selling pressure this week with prices sinking towards 1.0670 on Friday after soft data from the Eurozone reinforced expectations of the ECB maintaining a dovish stance. A resurgent dollar from the improving sentiment towards the US economy has fueled the downside on the EUR/USD with sellers back in action. From a technical standpoint, bulls lost their opportunity to break above 1.0900 with the breakdown below 1.0750 invalidating the bullish daily setup. Previous support around 1.0750 could transform into a dynamic resistance that encourages a further decline lower towards 1.0500.
Commodity spotlight – Gold
Gold found itself under selling pressure on Thursday with prices sinking lower on Friday after the positive fourth quarter GDP figure from the US boosted the dollar. The rising expectations of further US rate hikes this year following the hawkish speeches from Fed officials have also compounded to the downside with sellers dragging prices towards $1242 as of writing. While bears may be commended on their ability to exploit the dollar’s resurgence to attack gold, the metal remains supported above $1225.
With risk aversion set to heighten amid the Brexit developments, gold bulls still have an opportunity to propel prices higher. Although most investors remain somewhat optimistic over Donald Trump’s pro-growth policies boosting US growth, a situation where the reality is well below market expectations could bolster the yellow metal’s allure. From a technical standpoint, the current technical correction could act as a foundation for bulls to challenge $1260.
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