"Sufficient Progress" made on phase one of Brexit talks

December 8, 2017 01:46 PM

European Commission to Recommend Moving onto Phase Two of Brexit NegotiationsBuy the Rumour, Sell the Fact - Sterling Dips on Brexit Announcement; Bitcoin Slides 10% as Crazy Trading Continues; US Jobs Report Eyed Later in the Session.

European Commission to Recommend Moving onto Phase Two of Brexit Negotiations
European equity markets are poised to open higher on Friday, buoyed by the news that the UK and the EU have come to an agreement on the three contentious issues that make up phase one of the Brexit negotiations.

After months of slow and frustrating negotiations, it has been announced this morning that sufficient progress has been made on the financial settlement, citizens’ rights, and the Irish border to move onto phase two of Brexit negotiations. Jean-Claude Juncker stated this morning that the European Commission will now make this recommendation to the European Council, who will vote on this next week.

There have been numerous times when an agreement looked difficult or even unlikely before year-end which would have made achieving a trade deal by March 2019 very tough. Today is a hugely significant step forward towards exiting the EU in 2019 and while both sides will be relieved at the progress, many more tough negotiations lie ahead. But we can’t underestimate how important today is.

Buy the Rumour, Sell the Fact - Sterling Dips on Brexit Announcement
The response in the pound to the announcement may come as a surprise given just how significant today’s agreement is but it’s worth noting that this has been in the making over the last couple of weeks and it was in both sides interest to get this done today. Had the two sides failed to come to an agreement then the downside in the pound may well have been far greater. We’ve seen a rally in the pound over the last couple of weeks on the expectation of a deal being agreed so what we may be seeing is simply a case of buying the rumor and selling the fact.

Bitcoin Slides 10% as Crazy Trading Continues
After two days of extraordinary gains, Bitcoin is experiencing a rocky start to trading on Friday and is currently trading down around 10% having rebounded slightly off earlier lows. While this would typically strongly indicate how an instrument may trade over the course of the session, Bitcoin has never played by the rules and I don’t think anyone would be surprised to see this trading back in the green before the morning is out, let alone the day.

To put today’s move so far into perspective, despite being 10% lower, Bitcoin hasn’t even wiped out Thursday’s gain or come close to doing so yet. I’m not sure that traders will be particularly deterred by what’s happened this morning, although again, Bitcoin is extremely difficult to predict and doesn’t exactly move in a logical manner. I do wonder whether the launching of Bitcoin futures on Sunday is driving people to lock in profits on the expectation or fear of large short positions being accumulated.

US Jobs Report Eyed Later in the Session
There’s plenty of economic data being released this morning, the most notable of which will be the US jobs report this afternoon. With the Fed preparing to raise interest rates next week, traders will be monitoring the data very closely for signs of a continuing tightening of the labour market that should produce inflationary pressures further down the road.

About the Author

Craig Erlam is senior market analyst at OANDA who also writes for OANDA’s Market Pulse site, Marketpulse.com.