Sterling was the day’s worst performer, losing nearly 1% of its value against the U.S. dollar. Brexit negotiations have taken a turn for the worse and could quickly turn into a political crisis for Prime Minister May. The EU released a draft of its Brexit agreement and in it they proposed a “common regulatory area for Ireland after Brexit. May responded by saying that “no UK prime minister could ever agree” to a separate customs agreement for Northern Ireland. This has been a serious area of contention and potential deal breaker, although the EU has invited the UK to come up with other solutions. The draft Brexit agreement also brings back the issues surrounding the European Court of Justice. The UK doesn’t want to be obligated to the ECJ’s decision but the EU wants disputes over Brexit to be settled by a joint committee. In a nutshell, the EU isn’t budging on their initial demands and therefore all of this is a setback for Brexit negotiations. Unfortunately Prime Minister May’s speech on Friday isn’t going to instill any confidence in her ability to get a deal done. UK negotiators will continue to work with the EU on reaching a deal and the main focus on Friday will be how amenable she is to their terms. With U.S. stocks ending the day at their lows, we expect further weakness in sterling, particularly against the Japanese Yen. Manufacturing PMI numbers are scheduled for release on Thursday and based on the drop in the CBI index, softer activity is expected.

Technically, GBP/JPY has broken below the 200-day SMA and has fallen back below the first standard deviation Bollinger Band. The next stop should be 146.00