Historic Day Ahead And European Markets Are Looking Bright

The historic day is upon us, and with that in mind, trader's are going to look at Sterling very closely for the first few hours when Theresa May triggers Article 50. She has signed the document last night and at 12:30 BST it will be delivered to Mr Donald Tusk- the man in charge in the European Union.

Today marks the first day of a new chapter, a new relationship with a hope that deal will be done when the dust will settle. It is going to be extremely ruthless, ugly and fierce battle as both sides will be fighting for their own interest only without the consideration of other party's interest.

The future is uncertain and this element has a lot of cost tied to it, but like any other battle, a peaceful resolution to reach a deal is the best solution for both parties.

Theresa May has vowed to represent every single person's interest in the UK during her negotiations and she is determined to fight this battle over the next two years. Once the letter is delivered, the EU will have 48 hours to respond to her letter and we do think that this is equally an important time if you are a currency player.

What is going to matter the most when it comes to this letter is the stance of this letter which includes some thorny issues such as access to the free market, addressing the freedom of movement, the rights of the EU and UK citizens who are working across the border of their own country and the exit bill of £50 billion. These thorny issues are supposed to be resolved within the next two years- a very optimistic picture, and if nothing is achieved, then years of battles in the court would be the future for both parties.

Given the recent rally in Sterling, it may be wise to take some profit off the table ahead of this event because despite being classified as a non-event, it is a historic event and bound to bring higher volatility over the coming few days. The chief reason for the strength in the currency (as we have mentioned a few times before) is the resilience of the economic data against the consensus view, and the rising inflation in the country which is keeping the Bank of England on its toes. The hawkish stance does exist within the MPC committee, although it may take some time to surface that. But, that would be one of the primary drivers for the currency in the months to come and a major element to focus for the markets.

Among other currencies, Euro may also experience higher volatility. After all, that is the other currency which is going to bear some concussion of this event when a number of firms will cut their ties with the U.K. The EUR/GBP pair is going to attract a lot of attention today, and it is likely that in the next couple of days, we see some more strength coming for the Euro under the light of this event.

Over in the US, it is the consumer confidence data which has rescued the dollar from its bad days after the Trump health care plan failed. What the consumer data has told us there is no hesitancy among consumers. This brought the rebound in the US markets yesterday. We do anticipate that doom gloom of Trump's health care plan failure is going to fade soon, as it is the tax and infrastructure plan which matters the most. It is highly likely that Mr. Trump is going to check all the T&C before he makes the final run with the bill in the House. This bill is going to become the center of attention for the US markets which would drive the trading action.

The pullback in the dollar which we have seen was an opportunity especially when you see that both the Fed and economic data are helping the sentiment. Two more rate hikes are very much on the table and this was the message which came from the Fed officials last night.

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