No Hard Border

There has been agreement overnight over the issue of the Irish border and EU Commission President Jean-Claude Juncker has confirmed that sufficient progress has been made for talks to move to the next phase.

It is not yet clear what concessions were made by Theresa May to “get over the finish line” but it must be remembered that this is merely the end of the preamble and the main business starts with talks over the future relationship which are sure to be at least as fractious as what has taken place so far.

The pound has rallied overnight but not by as much as may have been expected which means that either the market wasn’t as short as analysts had expected of there is still caution over what this interim agreement really means for the U.K. It has reached 0.8699, within reach of the level, that was last seen on the day of the General Election in June, of 0.8644.

May will be in Brussels today for talks but it seems the formality of the announcement has already taken place which will be ratified by next week’s Heads of Government Summit in Brussels, so that stage two of talks can begin.

Technical patterns shattered as Pound reacts to Brexit

Traders who rely solely on their charts seeing fundamental analysis as simply noise will have had a tough week as the pound turned first this way then that driven by the interminable arguments over the Irish border. If confirmation was ever required of the need to be balanced in outlook and to use every available tool to be a successful trader, then this week provided it.

Starting on Monday when there was every indication that an agreement was about to be signed only to be dashed at the last minute and finishing this morning with an agreement where one seemed impossible, the charts have been of little use other than to confirm long term targets and support/resistance levels.

As we move forward to the next stage of Brexit talks there will be several lessons learned by those who will remember this week as pivotal. As ever stop loss levels are crucial to a successful trading strategy. Not being “married” to a position is also vital, as admitting you are wrong is likely to save capital long term. Consideration of position size in such markets will allow the conservative trader to live to fight another day.

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Employment report more than a single signal

Today’s U.S. employment report could prove to be seminal and be the most important of the year. It will not only determine whether the FOMC will raise rates at their meeting next week, it will determine the direction of U.S. monetary policy throughout 2018.

A 200k+ NFP with an hourly earnings increase of 2.5%+ should give Janet Yellen sufficient cause to champion a hike. This will be the last meeting at which Mrs Yellen will hold sway. The next meeting is on January 30/31 and since her term ends on February 3, it will entail the handing over of the reins to Jerome Powell. Mr. Powell has been approved by a senate committee and will be officially endorsed by a vote in congress in the coming weeks.

The dollar has been in the doldrums lately with the approval of the fiscal reform bill something of an anti-climax after months of waiting. Next year it is expected that President Trump will concentrate more on domestic issues and will release a programme of economic reforms that he promised during his campaign.

The dollar index has been drifting higher all week as the expectation for a sufficiently strong NFP number drove expectations. It has reached 93.97 this morning although there is strong resistance just above this level that should cap any relief rally following the data release.

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