It’s that time of the week/month/year again. Parliament are having a vote on Brexit, with the only ‘known known’(©Donald Rumsfeld) being that Theresa May hasn’t found any more friends for her previous attempt.
It is said that a donkey is a horse designed by committee. There’s a joke in there about metaphors, Brexit, majorities committees, compromises and making an ass of oneself. Somewhere.
If those ‘sources close to the situation’ are to be believed, Remainers are planning a motion to extend the withdrawal date past the 29th March deadline, with little surprise that the Germans would be on board with that. Brexiteers want to keep ‘no deal’ on the table as a bargaining chip and for The PM to go back to Brussels and negotiate Tuesday amendments…including compromises on the Irish Hard Border. The very obvious stumbling block for the latter is the EU is standing firm that no further changes will be made.
If that’s a Brussels bluff, it’s a pretty good one. But last week it appears that’s exactly what global markets decided. Sterling soared midweek, breaking back above 1.32 vs. USD (although hasn’t yet fancied breaking resistance towards 1.33) , 1.85 vs. AUD and an impressive best since May 2017 of 1.16+ against EUR. Although back below those dizzying heights at the beginning of this week, all were prices above my expectations even should a ‘No Deal’ have been unequivocally taken off the table.
Admittedly the euro swing was also encouraged by some tough times on the continent, but still: WTF? (Who’d Trust Forex?)
Carney Speaks on Monday and you’d expect a reiteration of the impact the known unknowns (©DR) of: Brexit meaning a slowdown in the economy, ‘No Deal’ being a disaster they must at least prepare for, and little reason to consider rate rises, when crashing out would likely mean recession and potential stimulus requirements.
Progress: good; never-ending uncertainty: bad. Whether selling or buying sterling, a 2.5% appreciation last week means there are newly-formed Resistance and Support levels to be considered for profit-taking depending on the bias..
All eyes on Tuesday…
GBP/EUR
Table of Contents
1 week: 1.14-1.16 ranges. Any removal of ‘no deal’ from the table, and 1.1175
6 month: 1.18
12 month: 1.21
GBP/USD
1 week: 1.32-1.3215 ranges. Ditto 1.34
6 months: 1.35
12 month: 1.39
The Eurozone had a hideous week on the data front; further encouraging short positions and giving confidence to sterling bulls that a breakthrough in Brexit will see sterling climb steeply against the single currency. Services Europe-wide and specifically in France, along with European and German manufacturing, all saw PMIs in retraction. That’s the first retraction in German manufacturing since 2013, with the bad-news doubling down on Friday, with their first ifo business Climate score below 100 since March 2010 for Europe’s largest economy! Draghi reiterated the downside concerns and there will be more from him.
In the US the Government is back open! But remember: Trump didn’t back down. In the same way that Roger Stone has definitely never broken the law ever…honest (watch ‘Get Me Roger Stone’ on Netflix if wanting a bit more background on that gentleman). I have a hunch that, with the shutdown over (for now) and focus-fatigue on the trade war, the FOMC on Wednesday will talk USD up a little; more a result of no news being good news. Friday Non-Farms is expected to be well below +200K; in fact forecasted for the worst in over a year. Any better and again expect Greenback appreciation on the EURUSD cross) on Monday afternoon. Despite my longer view, shorting that pair shorty-term seems sensible.
EUR/USD
6 month: 1.17
12 month: 1.21
The Bank of Japan delivered an extremely ’loose’ monetary policy update, as was the expectation. Barely-existent inflation was downgraded further, huge stimulus remains and Japan’s December exports dropped the most in 2 years. In Governor Haruhiko Kuroda opinion “…if U.S.-China trade tensions are drawn out, there will be a serious risk to the global economy…” Risk off and, of course, the ultimate irony of ‘go long Yen’. To reiterate ‘global risk appetite’ current trend, Gold back above $1300 an ounce reflects a preference for short-term safety, over risky returns.
USD/JPY
Weekly: 109
6 month: 108
12 month: 107.50
Aussie jobs were a major plus down in the sunny summer southern hemisphere. The number of those employed again beat forecasts and 5% unemployment rate is the lowest on record since June 2011. Wage pressures remain, but are moving in the right direction as well.
Inflation not missing the 0.4% forecast is imperative for further dollar strength in the near term For the Kiwi, it gave up a little to AUD, inflation just about hanging on to 0.1% helped alleviate fears of a rate cut and keep its level close to 6 month highs against a basket of counterparts.
For the Canadian dollar, GDP this week, but again, escalation or easing in the US-China trade war will remain crucial to of all three commodity exporters and the value of investment in each’s currency.
GBP/AUD
Weekly: 1.8
6 months 1.83
12 months 1.86
USD/CAD
6 months: 1.29
12 months: 1.34
AUD/NZD
6 month: 1.08
12 months 1.10+
