UK Speaker Blocks Brexit Deal, DXY Hits Two-week Low Ahead of FOMC

The pound traded lower yesterday after UK Parliament Speaker John Bercow ruled out another vote on the same deal that was rejected last week, something that diminishes the chances for a “meaningful vote” before Thursday, when the EU summit begins. The dollar traded fractionally higher, after it hit a two-week low. USD traders are sitting on the edge of their seats in anticipation of tomorrow’s FOMC meeting, and taking into account DXY’s latest leg down, they may be expecting a dovish outcome.

UK Parliament Speaker Bans Vote on Same Deal

The British pound started drifting south yesterday on doubts over whether UK PM Theresa May could convince enough lawmakers to change their minds and support her deal at a third meaningful vote, and it took another hit after UK Parliament Speaker John Bercow said that the Prime Minister cannot put the same deal to a new vote unless there are material changes made. It rebounded though soon thereafter, to recover the lost ground against some of its counterparts, after the government said that talks over a deal continue with lawmakers of Norther Ireland’s DUP. However, with the EU staying adamant that it will not reopen the withdrawal agreement, we see the chances of a vote over an updated deal before Thursday, when the EU summit begins, as very slim.

With no deal in hand, PM May would now have to request a longer extension, with media reports suggesting that she will seek a delay of 9 to 12 months. Something like that may prove supportive for the pound as it will remove the risk of a disorderly withdrawal on March 29th. Having said that though, it is not yet crystal clear whether EU officials will indeed approve the UK’s request for an extension. Remember that they need a clear purpose before giving the “green light” to any delay, and that consent from all 27 member-states is needed.

GBP/AUD — Technical Outlook

If GBP/AUD makes a move back above the 1.8725 hurdle, marked by the intraday swing low of March 14th and the high of February 28th, this would place the rate above the 20 SMA within the Bollinger bands, which could spark some more hope in the eyes of the bulls. Such a move could increase the pair’s chances of traveling further north, towards the 1.8775 obstacle, which is near yesterday’s high, as well as the highs of March 7th and 11th. If that obstacle is still no match for the buyers, a break above it may lead the rate towards last week’s high, at 1.8864.

On the downside, as we mentioned above, even if we see a slide a bit lower, as long as the short-term tentative upside line remains intact, we will continue aiming higher. But if that line eventually gets broken and the rate slides below the 1.8520 hurdle, this might put more negative pressure on GBP/AUD, which may travel further south. We will then examine the possibility of seeing a test of the 1.8450 hurdle, which also could coincide with the 200 EMA, a break of which might open the door to some lower areas. This is when we will look into a potential test of the 1.8390 support area, marked by the low of March 11th. Slightly below sits another possible target for the bears — the medium-term upside support line taken from the low of December 3rd, as it might hold the pair from moving further down.

USD-Traders Await for Tomorrow’s FOMC Decision

Although the greenback ended slightly up, the DXY index hit a new two-week low before rebounding somewhat, suggesting that USD-traders remained on the defensive ahead of tomorrow’s FOMC decision. The modest rebound may have been the result of some short covering. In our view, the DXY’s latest leg down suggests that following the Fed’s switch to a “patient” stance in January, investors are likely anticipating another dovish narrative accompanied by a downside revision in the new “dot plot”.

That said, even if the dollar comes under renewed pressure today and tomorrow heading into the decision, we view the risks surrounding its aftermath reaction as being asymmetrical and tilted to the upside. Yes, we also see the case for a downside revision to the rate path, but the question is by how much. Market participants are already pessimistic, with the Fed funds futures suggesting that they are nearly 75% confident that the Fed will not act this year, and that they assign a 25% probability for a rate cut. The chance for a hike remains at 0%. Thus, even if the new “dot plot” is revised down to 1 hike by year end (from December’s 2 rate increases), it would still be well above investors’ consensus and could thereby prove positive for the dollar.

Passing the ball to the Aussie, even though it was found fractionally lower against its US counterpart this morning, it barely moved when the RBA minutes were out. As we expected, the minutes were more or less along the same lines as the previous ones. They revealed again that members noted “significant uncertainties” with regards to the economic outlook, and that they saw scenarios where interest rates could increase or decrease, with the probabilities around these scenarios more evenly balanced than they had been over the preceding year, when an eventual hike had appeared more likely.

AUD/USD — Technical Outlook

If AUD/USD tests the aforementioned short-term downside line, fails to break it and travels lower, we will then target the 0.7070 area again, which last week acted as both good support and resistance. A drop below it could lead the pair further down, where it may hit the 0.7040 obstacle, marked by the low of March 14th. If even at that area there are no bulls in sight, the bears might continue dictating the rules and drag the rate towards its next possible support zone, at 0.7000, which is marked near the low of March 8th.

On the other hand, if the aforementioned downside line breaks and AUD/USD makes a move above the 0.7120 barrier, marked by yesterday’s high, this could invite more bulls into the game and the pair might have a good chance to continue climbing higher. This is when we would target the 0.7150 obstacle, a break of which might open the door to the 0.7200 level, which marks the high of February 26th. This is also the area where the rate could hit a medium-term tentative downside resistance line drawn from the high of December 4th.

As for Today’s Events

From Germany, we get the ZEW survey for March. Expectations are for the current conditions index to have declined to 11.2 from 15.0. The economic sentiment index is anticipated to have risen, but to have remained in negative territory. Specifically, it is forecast to increase to -11.0 from -13.4. Eurozone’s wage growth and labor costs indices for Q4 are also coming out, but no forecast is available for neither release.

In the US, factory orders for January are due to be released. Headline orders are expected to have accelerated to +0.3% mom from +0.1% in December, while no forecast is currently available for the core rate.

With regards to the energy market, we have the API (American Petroleum Institute) weekly report on crude oil inventories, but as it is always the case, no forecast is available.

As for the speakers, we have one on today’s agenda: ECB Chief Economist Peter Praet.


The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. JFD Group, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD Group analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD Group prohibits the duplication or publication without explicit approval.

76% of the retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Please read the full Risk Disclosure.

Copyright 2019 JFD Group Ltd.

Originally published at



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store

JFD is a leading Group of Companies offering financial and investment services and activities.