The possibility of a new Brexit deal supports the pound

The pound found some support yesterday on a fundamental level, reversing the downward motion of the last two days of the past week. As was expected, UK PM Sunak with EU chief Von der Leyen sealed a decisive breakthrough in the Brexit agreement, regarding Northern Ireland’s trading agreements. The “Windsor Framework” as it was called by UK PM Sunak, would include a lowering of the trade barriers between Northern Ireland and Great Britain, the European Court of Justice still has oversight, Northern Ireland has a “veto” on new EU laws and key taxation rules are to be amended, while the approval of the deal is still pending with Northern Ireland’s Unionist Party (DUP) playing a key role here. Overall, the deal seems to be getting support and tends to highlight the simplification of the trading arrangements of the UK with the EU, which in turn supported the GBP but also in general could provide some support for UK assets. Across the Atlantic, the USD was on the retreat against its counterparts yesterday, practically correcting lower after Friday’s jump, due to the elevated Core PCE price index growth rate for January. We should note that the durable goods orders growth rate contracted more than expected, implying a lack of confidence on behalf of US businesses to actually invest in the US economy and may have contributed to the weakening of the USD.

We note that gold’s price took a breather edging slightly higher as it took advantage of the USD’s weakening, while US stock markets ended the day in the greens in a sign of improved market sentiment. Across the Pacific, we note that the preliminary industrial output growth rate for January of Japan, contracted more than expected, and actually suffered the widest contraction since May, creating some worries for the outlook of the Japanese economy. In Australia, we note the rise of the current account balance, while the retail sales growth rate accelerated more than expected both being among the positives on a macroeconomic level.

AUD/USD remained near the same levels, breaking the 0.6720 (S1) resistance line, now turned to support. Despite the relative stabilisation, we tend to maintain a bearish outlook for AUD/USD given that the downward movement since the 14 of February has not been broken yet and the RSI indicator remains near the reading of 30. Should the selling interest be maintained, we may see the pair breaking the 0.6720 (S1) support line and aim if not breach the 0.6625 (S2) level. Should a buying interest be expressed by the market we may see the pair, reversing course and reaching if not breaching the 0.6800 (R1) resistance line.

Cable edged higher after bouncing on the 1.1925 (S1) support line. GBP/USD also broke the downward trendline guiding it and reaffirmed its sideways motion, as the 1.1925 (S1) support line held its ground. Should the bulls take over, we may see the pair breaking the 1.2115 (R1) resistance line, while for a bearish outlook, we would require cable to break clearly the 1.1925 (S1) support line.

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During today’s European session, we note the release of Turkey’s, Sweden’s, France’s and Switzerland’s GDP rates for Q4 while we highlight the release of France’s preliminary HICP rate for February and also note the release of Switzerland’s KOF indicator for the same month. On the monetary front, pound traders should be on the lookout as BoE’s Mann and Pill are scheduled to make statements. In the American session, we highlight the release of Canada’s GDP rates for Q4, while we also note the release of the US consumer confidence indicator for February and oil traders may be interested in the release of API’s weekly crude oil inventories figure. On the monetary front, we note the speech of Chicago Fed President Goolsbee. During the Asian session, we note from Australia the GDP rate for Q4, while from China we get the NBS and Caixin manufacturing PMI figures for February and on the monetary front, Bank of Japan board member Junko Nakagawa delivers speech.