Market News & Insights
8 December 2017

White Smoke Ends the Joke

Well, joke might be a bit harsh but the majority of people I speak with on a daily basis across the UK and Ireland certainly think negotiations thus far have been a farce and outside of the British Isles in mainland Europe most appear to be almost in shock at how little progress has been made. Thus, any slight ray of light in talks is enough to see GBP find support and rally. This was the case last night, with headlines suggesting progress had been made and a deal was close, meaning talks next week can progress on to the real key factor for the UK that is the trade talks. The sticking point over the last week has been the Irish boarder but EU officials have said that “sufficient progress” has been made on this front as well as the treatment of EU citizens. There will be no hard boarder in Ireland and while there are obviously dissenters in British government and the public for that matter on this topic, for now it appears the focus can return to the real nitty gritty and how UK and EU trade will occur in the post Brexit environment. That is not to say that sterling is a one way street, we have heard nothing from the DUP and we’re sure to run into hurdles in the coming hours and days next week, especially with the EU summit next week. Elsewhere today there will be some attention on data with UK trade balance just released which was better than expected and has helped sterling even further.

EURGBP dropped back through key support and below .8730. That technical break of a level that has held up EURGBP since early June means there is considerable downside potential in EURGBP and technical’s suggest we could see a move back towards levels closer to .8100 area over time. Key post Brexit support levels sit around the .8330 area so that will be the major test on a larger move lower but for now there is plenty of open space to be filled between .8700 and .8300 area. In the shorter term .8692 provides initial support, while .8646 is the next level below that. GBPUSD is a little less dramatic, the stronger USD is containing the sterling rally for now and last week’s highs around 1.3550 provide resistance to moves higher. While support around 1.3320 area still attracts should the USD find scope to rally this afternoon.

The key print for the USD will be the NFP figure, Wednesday’s ADP employment report came in as expected and there is not too much fanfare around the headline NFP print, expected to show 195k jobs added through November. To be honest the headline figure has carried far less weight that actual wage growth and even a strong headline number can be undone by weak wage growth. That’s where our focus will be and with average hourly earnings expected to rise to 2.7% from 2.4%, there is additional scope for the greenback to rally further, adding to its +1% gains this week (USD index). EURUSD is breaking back towards 1.1700 where support just below around 1.1675 area offers the first line of defense to a more aggressive drop. Below that and lows sub 1.1600 will be our primary focus.