Pound and Euro Looking Weak

BrexitAlthough traders have found the most reliable short-term profits over recent days in trading long the U.S. stock market indices and the positively correlated USD/JPY currency pair – both of which have been trending up since just before the start of the 2019 calendar year – the British and Pound and the Euro are coming more into focus and at least one of these currencies looks likely to steal the limelight from the Japanese Yen soon.

Although it has been slow-moving, the EUR/USD has been in a long-term downwards trend for a long time: since April or May 2018. The last few months have seen the trend consolidate between approximately 1.1250 and 1.1550. Yesterday saw the lowest daily close in 50 days, although the support level I have been highlighting just above 1.1250 is still holding. However, the price is bumping along against this level from above and looking heavy, so a strong breakdown is looking more likely. This could be a significant bearish breakout which might be helped along by negative sentiment on the Euro, which is driven by slowing growth in key Eurozone economies, a recent confirmation of that from the European Central Bank, plus political fears about Brexit, the Italian Government, and the political situation in France.

On the subject of Brexit, the Pound has also been on its way down. GBP/USD just broke a key support level at 1.2828 a few hours ago. The Pound is being weakened today by the strengthening prospect that the Government is likely to lose another key Brexit vote tonight. The European Union and the United Kingdom are daring each other to blink first before a “no deal” Brexit, but it is the European Union’s act which is much more convincing. Britain is hopelessly split down the middle over Brexit, and I see “no deal” as highly unlikely. If Brussels offers a qualification of the “backstop” at the last minute, the British Parliament will lap it up on almost any terms. At this point the Pound would be likely to rise, while the Euro may remain weak on broader terms. Yet we are still some way away from 29th March, the scheduled date on which Britain leaves the European Union, so it probably is not wise to buy the Pound yet.

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment. Learn more from Adam in his free lessons at FX Academy.