EU and UK to start negotiations. What’s the future for euro and pound?

We waked up yesterday only to find the market had collapsed. After the opening of the Asian stock market, the relay fell. The US stock market fell for two consecutive days. The Dow dropped till 1911.

In this tense current market environment, how have forex markets changed?

Let's first understand the bullish and bearish news on the market:

A spokesman for the British Prime Minister said that the Cabinet has authorized the trade negotiations with the European Union, which indicates that the United Kingdom and the European Union will begin negotiations.

In addition, the euro ’s one-month risk reversal indicator rebounded sharply to -0.125 on Tuesday, a new high in more than two weeks, and the bearish sentiment quickly subsided, which may be due to the impact of the decline in US stocks. Credit rating agency Moody's pointed out that the overall European default rate has climbed this year.

The outlook for Europe's economy is overcast, which has also put some pressure on the euro.

On this Tuesday, the one-month risk reversal indicator for the British pound rose to -0.15. From this, we can analyze that the pound bearish sentiment has declined, and the short and long sentiment has begun to reach a balance.

Probability of BoE ’s rate cut in March and May fell to 14% and 41.5% respectively. Yet the probability in May remains above 40%, showing the market expects a great probability for a rate cut.

It’s worth noticing that the EU ’s chief Brexit negotiator, Barnier, stated that unless Britain agrees to the EU ’s requirements for fair competition and fishing, the two sides will not reach any free trade agreement, which has put certain pressure on the pound.

In terms of investment sentiment, affected by public health events, there is an growing of calling for Fed ’s interest rate cuts, thus the US dollar has suffered a decline; while the euro has recently rebounded at a low level and has been rising for several days; the yen has rebounded this week, demonstrating its risk aversion function.

In response to the current volatility in the financial market and the trend of the pound against the US dollar on Tuesday, Rufus analyst Andrew M Spencer believes that the short-term signals of the pound ’s ups and downs are conflicted, and the trading range of the pound against the US dollar will tighten to 1.2993-1.3008.

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