The pound got a lift yesterday following some positive comments from the EU chief negotiator, Michel Barnier who said he thought a positive Brexit deal was possible within the next 8 weeks.
Well, despite what some cynics might think, that was enough to push the pound to a positive close against both the USD and the EUR. The GBPUSD ended the session last night above 1.30 for the first time in almost a fortnight. The GBPEUR also closed at its best levels for same period, above 1.1225.
I suppose the burning question is whether or not this rebound can be sustained and in the short term I think there is certainly potential for a move to around 1.3085 versus the dollar and perhaps over the next week, maybe higher than that, towards the 1.32 handle.
As far as the GBPEUR is concerned it could quite easily see a move a little higher too, certainly towards 1.1260 today and maybe beyond as the week unfolds. However, a lot depends on whatever the next headline delivers for the markets and with so much uncertainty still abounding the herd is unlikely to yet change their longer term sterling outlook.
Overnight we have seen some positive Asian equity market movements and that has helped to keep the JPY on the back foot, but despite that the likes of the DAX and the FTSE are still underperforming.
The FTSE in particular is still sensitive to the level of the GBPUSD as most of the FTSE 100 companies have such a large element of their income from over the pond. Hence there is a loose inverse correlation between the level of the FTSE and the GBPUSD. That is to say quite simply; that a higher GBPUSD puts downside pressure on the UK benchmark and vice versa of course.
It should also be remembered that the DAX can be pretty sensitive to the level of the EURUSD too for reasons which I hope are obvious? However, that correlation is much looser and far less consistent.
On an aside, a very close friend in Spain in the property game, informs me that things are still pretty buoyant down there whereas the same cannot be said in London. He is still seeing good demand from Scandinavian buyers- Swedes relocating perhaps!
So far this morning the dollar and the JPY are the worst performers with the EURUSD getting a boost following some budget positive comments out of Italy. That news has also helped to lift the GBPUSD to a test of that 1.3085 level I just mentioned.
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