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GBP/USD Heavy on Cameron’s EU Speech

GBP USD Dropping January 23 2013
In a dull and quiet overnight trading period, which saw the EUR and USD/JPY trade within their recent ranges, the British Pound takes center stage after British Prime Minister David Cameron pledged an “in-out” national referendum by 2017 as to whether the country should remain in the EU, if his party wins the next election.

The next election in Great Britain will be in 2015. PM Cameron stated that his choice would be for Great Britain to remain in the EU, but only after negotiations had restored some powers to the country. He said, “after we have negotiated a new settlement, we will give the British people a referendum with a very simple in-or-out choice”. “To stay in the EU on these new terms or come out altogether”.

PM Cameron’s biggest obstacle now appears to be getting re-elected in 2015. The Tories are presently trailing the Labour Party by about 10 points. However, considering this election is two years away and anything may happen in that time, looking at polls now seems a little foolish.

This story will have a long time to grow but needless to say, the speech today did have an effect on the GBP. As expected the GBP came under pressure during the PM’ s speech reaching an overnight low of 1.5801 but has since regained it’s “legs” and is trading around the overnight high of 1.5877. Aiding the GBP rise has been positive economic releases in Great Britain. Unemployment for the 3 month period ending in November was at 7.7%, beating the 7.8% consensus and the release of the latest Bank of England meeting minutes should the MPC voted 8-1 in favor of keeping the QE at GBP 375 billion, so there were no surprises there.

As for the other currencies, the USD/JPY remains in a dull trading range within the 88.00 handle as traders appear dissatisfied with the actions of the BOJ at their latest meeting. Apparently, traders were expecting more aggressive easing moves that the open-ended asset purchase plan that was announced. Support for USD/JPY remains at 88.00 and 87.80, with resistance at 88.80 and 89.10. All focus now as far as the USD/JPY is concerned will be on the replacement of BOJ governor Shirakawa, when his term ends in April.

As for the EUR, comments by ECB President Draghi yesterday that “the darkest clouds over the Euro area have subsided”, did not rally the single currency and the EUR had a relatively quiet 60 point trading range overnight. At present, the target of 1.3400 remains intact, however, a failure to test there in the next few days, could see a reversal and support at 1.3280 tested. For now expect the trading range over the last few days to continue.

EUR/USD Jan 23 – Steady After Strong Euro Economic Sentiment Data


Focus will also be on the ongoing US debt negotiations. Once again we will continue to hear bi-partisan comments from both Republicans and Democrats, while the news commentators warn of a government shut down if no agreement is reached. These are the same commentators who had us all jumping off the fiscal cliff a few weeks ago. An agreement will be reached. The government won’t shut down. However, these negotiations will lean on the USD and this should keep the currencies better bid over the near term.

Matthew Lifson

Matthew Lifson

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.