No Brexit agreement reached on deadline day, GBP rebounds dramatically

Global equity market:

(Source: https://markets.businessinside...)

The US equity market was up and down yesterday:three major indices opened strong but went down as the day progressed. The Dow Jones fluctuated for 200 pips and closed down by 0.58% at 28514, while the NASDAQ decreased by 0.81% to 11985.36 and the S&P 500 dropped by 0.66% to 3488.67.

Meanwhile, the European market was somewhat less active - the DAX 30 rose 0.07% to 13028.06 and the FTSE closed down by 0.58% at 5935.06.

Chinese stock markets reconsolidated downwards, starting strong but declining in a similar manner to their US counterparts. The Shanghai Stock index dropped 0.56%, the SZSE Component index decreased 0.78% and the GEM index went down by 0.74%. Trading volumes also shrank yesterday.

Crude oil forward contracts

WTI oil went below $40 during the European and Asian sessions. The price hit a daily high at $41.13 the North American session and closed up by 2.29% at $41.09 per barrel.

Brent oil rose 2.31% to close at $43.42 per barrel.

Precious metal forward contracts

Gold dropped to a daily low of $1882 yesterday before recovering during the US trading hours and eventually closed upby 0.53% at $1901.3.

Silver behaved similarly; the price dropped to $23.85 (a daily low) and rose to $24.62 as the day’s high point before closing at $24.25 – an increase of 0.52%.

Currency pairs

·            USDX down to 93.4(-0.128%)

·            EUR/USD up to 1.17463 (0.023%)

·            GBP/USD up to 1.3008 (0.567%)

·            AUD/USD up to 0.71643 (0.085%)

·            NZD/USD up to 0.66577 (0.108%)

·            USD/CAD up to 1.31414 (0.043%)

·            USD/JPY down to 105.093 (-0.342%)

Global Fundamentals

United States

US President Donald Trump raised the drug company Regeneron Pharmaceuticals’ profile yesterday by calling its eponymous drug a miraculous cure, despite ongoing debates as to its true effectiveness.

Media figures have described this testimonial as a ‘double-edged sword’ for Regeneron.¹

UK

European Union (EU) Commissioner for Internal Market Thierry Breton told BFM business radio on Tuesday that the EU would prefer to have a Brexit deal, but it is ready in case no agreement can be reached.

“We prefer a deal - but not at any price - and if there is no deal, we are ready,” Breton said. “Our customs are ready for a no-deal and it is urgent that British customs also prepare for it,” he added.²

Additionally, the Organisation for Economic Co-operation and Development (OECD) warned a disorderly Brexit could damage the UK's economic recovery from the coronavirus shutdowns,noting the UK faces simultaneous major challenges from both the COVID-19 crisis and leaving the EU.³

World Trade Organization (WTO) arbitrators ruled that theEUis able to impose tariffs of up to $4bn on US goods in response to the US Government’s subsidies to aeroplane manufacturer Boeing.⁴

Crude oil

The International Energy Agency(IEA) announced as part of its monthly report that oil demand has recovered to 94% of 2019 levels; however, the agency has adjusted its demand forecast down 140,000 barrels per day for Q3 2020.

It also predicts that global demand in 2020 will be cut by 8.4 million barrels per day and that the demand will not fully recover by the end of 2021.⁵

Today’s major asset analysis

EUR/USD and GBP/USD

Yesterday, the pound was the biggest hit on the market with a 200-pip rise from daily lows within six hours.

Despite the previously agreed Brexit deal deadline being reached this morning, some reports suggest that negotiations could still be ongoing; this could affect the UK side’s credibility with the public, which along with a reported second spike of virus will no doubt be on investors’ minds.

The fundamentals are still questioning the UK’s ability to stage an effective economic recovery in the midst of the three-tier restriction system, while across the Channel the EU seems to also be readying for a no-deal Brexit.

The euro’s price didn’t change too much yesterday, and our analysis remains unchanged. The EUR’s resistance is still around 50% of the last dropping trend with a support level around 1.718. The pound, meanwhile, is supported around 1.296 with a resistance at 1.307.

[EUR/USD, four-hour chart] (Source: KVB PRIME)

[GBP/USD, four-hour chart] (Source: KVB PRIME)

AUD/USD

The Australian remains in price range from 0.7132 to the weekly EMA, and the Australian economy remains in a precarious state at present.

Intraday, the physical lower support is around 0.712, while the weekly EMA still provides some resistance.

[AUD/USD, four-hour chart] (Source: KVB PRIME)

Gold

While the pound rose, the gold price broke through the first and second resistance but went lower during the US trading hours.

Now, the price is struggling to stand above 1900 and is under pressure from both the weekly and daily EMAs.

Please note, however,that the deviation between the two EMAs is small, which makes the 1876 support more effective and puts the resistance at around 1905.

As for a yearly analysis, it seems likely the gold price will return to its fundamental supply and demand value over the long term.

[XAU/USD, four-hour chart] (Source: KVB PRIME)

USD Index

The USDX is moving within a price range from 93.4 to 93.7, even with a higher and rising GBP.

Technically, the price is supported by both the daily and weekly EMAs but is facing some pressure from the trend line as illustrated.The upwards resistance is around 93.47.

Once the price breaks through this line and tests it as a support level, a further resistance boundaries would likely be around 93.7 as the first and 94 as the second.

[USDX, four-hour chart] (Source: KVB PRIME)

[i] NY times(2020),

Trump’s Testimonial Is a Double-Edged Sword for Regeneron,

https://www.nytimes.com/2020/1...

[ii] Reuters (2020) ,

EU would prefer a Brexit deal but ready for no deal, says Breton,

https://www.reuters.com/articl...

[iii] OECD (2020),

UK: spending to address COVID-19 and Brexit should fit with productivity, social and environmental goals,

https://www.oecd.org/economy/u...

[iv]WTO(2020) ,

WTO arbitrator issues decision in Boeing subsidy dispute,

https://www.wto.org/english/ne...

[v]IEA(2020),

Monthly Oil Data Service (MODS) Complete,

https://webstore.iea.org/month...