News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Mixed
Oil - US Crude
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bearish
Gold
Mixed
GBP/USD
Bearish
USD/JPY
Mixed
More View more
Real Time News
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.86%, while traders in EUR/USD are at opposite extremes with 74.11%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/D1ZzX4wPYY
  • China reported 137 new Covid-19 cases in Xinjiang province and a mass testing has started in the area from Saturday evening - Channel News Asia
  • China A50 index plunged 1.8% amid sour sentiment across the Asia-Pacific. Beijing will kick off the Chinese Communist Party Plenum this week, setting economic goals for the next 5 years. https://www.dailyfx.com/economic-calendar#today https://t.co/lXQBUkehzE
  • PBoC sets Yuan reference rate at 6.6725 against the US Dollar - BBG
  • #Silver retracing its losses earlier in the session as price carves out a Bear Flag pattern With resistance at $25 holding firm, further losses appear in the offing A daily close below the 21-DMA (24.20) may open the door for a retest of 61.8% Fib support (21.74) $SLVR $SLV https://t.co/rCl3Ms3FB3
  • The Nasdaq 100 index looks set to pull back amid bearish momentum in the near term. The 50-Day Simple Moving Average (SMA) line may serve as an immediate support. Get your #equities update from @margaretyjy here: https://t.co/5Axsg6gAdd https://t.co/rToHnPLSeS
  • $GBPUSD the outlier early in the session, up marginally as UK-EU Brexit negotiators extend talks until October 28 https://t.co/ey92YW4RJw
  • #CrudeOil down 1.95% on the back of tightening #COVID19 restrictions in several European nations $EURUSD nudging marginally lower https://t.co/PUWTfKl08f https://t.co/XuyQOzV6sj
  • Market Snapshot Broad risk-off tilt to kick-off APAC trade #Gold and #CrudeOil prices plunging lower alongside the risk-sensitive $AUDUSD Haven-linked $JPY and $USD moving higher against their major counterparts
  • Wall Street Futures Update: Dow Jones (-0.504%) S&P 500 (-0.536%) Nasdaq 100 (-0.484%) [delayed] -BBG
British Pound Plunges After Story of French President Demanding Brexit Pain

British Pound Plunges After Story of French President Demanding Brexit Pain

2016-10-07 00:30:00
John Kicklighter, Chief Strategist
Share:

Talking Points

  • GBP/USD dropped as much as 5 percent while EUR/GBP advanced nearly 4.5 percent
  • A FT report quoted French President Francois Hollande calling for hard Brexit negotiations
  • Without obvious detriment to the UK’s leaving the EU, it is feared others will follow suit

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

The Brexit pain has stretched to the illiquid afterhours between the close of the US session and open in Tokyo. Early Friday morning, the Sterling suffered its biggest bearish shock since the EU Referendum vote on June 23/24 seemingly on calls from French President Francois Hollande for the European Union to take a hard line in negotiating the split Brexit split to head off an existential crisis for the broader region.

A Financial Times report had quoted the French President who gave a speech at a dinner in Paris honoring the 20th anniversary of EU think-tank Notre Europe. Among the attendees were the EU’s Brexit negotiator Michel Barnier and EU President Jean-Claude Juncker. In the remarks, the Hollande said that the United Kingdom’s decision to leave the Union should not be without its hardship. Recently, UK Prime Minister Theresa May has suggested that the country was willing to forgo access to the single market to ensure control over immigration – what she considers the primary motivation for the Leave vote.

Recognizing the aggressive negotiating position the UK intended to take – what is being coined as a ‘hard Brexit’ – Hollande said the EU would have to meet the effort with “firmness”. If the fallout from this withdrawal is not painted in dour enough light, the fear is that other European countries suffering economic hardship and/or are facing a rise in anti-EU, anti-Euro sentiments will attempt to follow in their wake. As the French President put it, if they did not discourage with severe consequences from the Brexit “other countries would want to leave the EU to get the supposed advantages without the obligations.”

British Pound Plunges After Story of French President Demanding Brexit Pain

Chart prepared by John Kicklighter using TradingView on DailyFX.com

In response to the sentiments hitting the newswires, the Pound immediately collapsed. In the span of two minutes, GBP/USD dropped from just around 1.2600 to below 1.2000. Exacerbating the situation were the thin conditions in the market. Not only is the transition from US to Asia liquidity the quietest period of the trading day, but market depth was further deflated by many participants pulling back ahead of the upcoming September US NFPs release. It took another 4 minutes to regain 400 pips of the lost ground, but the damage to traders’ nerves was already done.

British Pound Plunges After Story of French President Demanding Brexit Pain

Chart prepared by John Kicklighter using TradingView on DailyFX.com

The Euro and the Pound

In the initial panic surrounding the Pound during the initial selloff, all the Sterling crosses suffered a similar fate. However, one particular pair that should be mulled over for its fundamental bearings is the EUR/GBP. Should the EU’s hard negotiation position punish the UK economy and financial system, the Sterling would certainly suffer. However, the Euro would not be immune to the reality that the community is eroding and anti-EU sentiment has gained traction. As such, a pair like EUR/GBP is facing a fundamental conflict where investors would have to determine which side stands to lose the most.

British Pound Plunges After Story of French President Demanding Brexit Pain

Chart prepared by John Kicklighter using TradingView on DailyFX.com

The Pound and the UK face the most immediate risk – and the drop on June 24th was testament to that. However, the systemic risk is far greater for the remaining Euro-area. There are other countries in the European Union and Eurozone (the group of 19 members that shares the Euro currency) that have seen a strong rise in protectionist parties. In fact, the National Front in France has gained substantial prominence in one of the core, founding members of the Unions. Should the economic, trade, financial and other damages done to the United Kingdom for its withdrawal fail to dissuade copycats, it could lead to a critical fracture in the sanctity of a primary economic powerhouse.

British Pound Plunges After Story of French President Demanding Brexit Pain

Chart prepared by John Kicklighter using TradingView on DailyFX.com

While there is room for debate between the Euro and Pound as to which currency is in the more dire straits at any given time, third party liquid alternatives stand to benefit substantially. While the Yen represents a reserve currency with a similar SDR basket exposure to the Sterling, its own dubious fundamental bearings will not encourage redirected capital flows into the Japanese markets. With two of the largest markets and currencies in the world under pressure, the impetus for absolute liquidity and safety grows ever more urgent. In turn, the Dollar stands as the most frequented reserve and thereby most suitable haven.

British Pound Plunges After Story of French President Demanding Brexit Pain

Chart prepared by John Kicklighter using TradingView on DailyFX.com

To receive John’s analysis directly via email, please SIGN UP HERE

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES