GBP/USD Rallies Most Since 2017 on Brexit Optimism, Yen May Weaken

Asia Pacific Market Open Talking Points

  • GBP/USD may extend Brexit-fueled rise and clear resistance
  • AUD/USD, NZD/USD climb amid US-China trade optimism
  • Anti-risk Japanese Yen may prolong declines in APAC trade

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British Pound Rose on Brexit Deal Hopes

The British Pound was hands down the best-performing major currency on Thursday as Brexit optimism fueled demand for Sterling. In a meeting with UK Prime Minister Boris Johnson, Irish PM Leo Varadkar noted that there could be a possible β€œpathway” for a divorce deal. This comes after a recent phone call Mr Johnson had with German Chancellor Angela Merkel which downplayed hopes of a Brexit deal.

Markets Find Optimism in US-China Trade Talks

The past 24 hours were a volatile session for markets, not least because of the latest Brexit news, but also due to the back and forth between the US and China on trade headlines. It began during the APAC session which saw an almost-immediate turnaround in trade-deal pessimism as President Donald Trump put forward a potential currency pact with China. He has made his displeasure about FX manipulation well known.

Sentiment picked up during the Wall Street trading session as headlines that Mr Trump will meet China’s Vice Premier Liu He tomorrow bolstered confidence of a trade deal. This sent the pro-risk Australian and New Zealand Dollars higher at the expense of the anti-risk Japanese Yen. A combination of this plus resounding strength in Sterling likely sapped the appeal of the US Dollar, especially after soft CPI data.

Friday’s Asia Pacific Trading Session

Absent a stray headline that may pour cold water on US-China trade deal optimism, Friday’s Asia Pacific trading session could be looking to a rosy start. The Nikkei 225 may follow Wall Street higher after the S&P 500 closed 0.64 percent to the upside. As such, this may continue weighing against the Japanese Yen while support the AUD and NZD.

British Pound Technical Analysis

The over 1.8 percent rise in GBP/USD has resulted in its best performance in a single day since April 2017. However, prices stopped just short of key descending channel resistance from March – blue parallel lines on the chart below. The latest positioning readings from IG Client Sentiment are offering a bullish-contrarian trading bias. This may pave the way for a test of the September highs ahead.

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GBP/USD Daily Chart

Chart Created Using TradingView

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— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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