The pound lost almost 3.5% versus the US dollar last week, as the markets priced-in the increasing likelihood of there being no trade deal with the EU in place at the end of the current post-Brexit transition period, following the UK’s government apparent intention to break the terms of the withdrawal agreement.
Nevertheless, sterling recovered more than 0.5% versus the greenback in early Monday trading, as some large investors see the current level as attractively priced and appear to dismiss the noise coming from Westminster as a negotiating bluff.
The gold price is slightly recovering following modest gains for stocks as investors look for new market movers. The macroeconomic calendar is not too busy today, while EUR/USD is also steady with the euro gaining just a few pips.
The main scenario remains unchanged as bullion is still in a long-term bullish trend, while in the medium-term the price is moving in a lateral channel between $1,860 and 2,070 and only a break out of one of these levels would provide a clear directional signal.
European shares followed the trend established overnight in Asia by opening higher, with market sentiment sending all sectors into green territory as traders digest this weekend’s positive developments. Global risk appetite is being boosted by positive news on the virus front, especially after Pfizer confirmed the likely deployment of a vaccine by the end of the year in the US. Despite a negative start in September, market sentiment seems to be getting better and better and many traders now see the current market correction coming to an end.
However, this week may be dangerous for investors on equities as market volatility will be on the rise due to a busy agenda. Many central banks (Bank of Indonesia, BoE, BoJ and the Fed) will be announcing policy decisions ahead of a quadruple witching trading session on Friday, with many futures and options contracts expiring.
This rising volatility is likely to increase trading opportunities if markets become more and more directional, but, on the other hand, it could be a trap for many investors if prices continue to trade sideways.
Pierre Veyret– Technical analyst, ActivTrades
Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.