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Asia AM Digest: British Pound Drops Despite Brexit Breakthrough

Asia AM Digest: British Pound Drops Despite Brexit Breakthrough

Research, Research Team


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The British Pound plunged despite a breakthrough in Brexit negotiations opening the door for talks about the future UK/EU relationship. The currency initially popped to an 18-month high but gave away those gains and finished Friday with a loss, hinting that profit-taking may have taken hold before the week-end.

The US Dollar put in a mixed performance following the release of November’s labor-market statistics. Payrolls growth topped estimates and the jobless rate held steady at an impressive 4.1 percent but wage inflation fell short of expectations.

The Yen declined as global share prices firmed, signaling improvement in market-wide sentiment. Not surprisingly, this weighed against the perennially anti-riskJapanese unit. Meanwhile, the pro-risk New Zealand Dollar capitalized on the upbeat mood, tracking broadly higher against the majors.

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IG Client Sentiment Index Chart of the Day: EUR/JPY

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Retail trader data shows 43.0% of traders are net-long EUR/JPY, with the ratio of traders short to long at 1.33 to 1. In fact, traders have remained net-short since Aug 04 when EUR/JPY traded near 129.034; price has moved 3.5% higher since then. The number of traders net-long is 4.8% lower than yesterday and 42.8% higher from last week, while the number of traders net-short is 22.3% lower than yesterday and 28.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/JPY price trend may soon reverse lower despite the fact traders remain net-short.

Five Things Traders are Reading

  1. Weekly Trading Forecast: Fed, ECB, BOE Meetings Promise Fireworks by DailyFX Research Team
  2. How Will Fed, ECB, BoE Rate Decisions and an EU Summit Shake Up Markets? by John Kicklighter, Chief Currency Strategist
  3. EUR/USD Weekly Price Forecast: Euro Has Major Support at its Feet by Paul Robinson, Market Analyst
  4. Consumer Are Surprisingly Confident About Income Expectations by Dylan Jusino, DailyFX Research
  5. US Dollar Whipsaws on November NFP as Jobs Beat, Wages Miss by Christopher Vecchio CFA, Sr. Currency Strategist

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