Brexit extension solves nothing

The granting of a six-month extension to Brexit by the EU 27 hasn’t exactly been well

greeted by pound. In fact, the currency has actually fallen back since that was announced in

the very early hours of yesterday morning. The main reason for this is of course; kicking the

can further down the road doesn’t for one minute remove any uncertainty for the markets.

Personally speaking I am rather baffled as to why the date has been set at October 31 st .

If one assumes that a second referendum is off the table, then surely six months is plenty

enough time to hold a general election? Perhaps such an election could even serve as a de

facto referendum as well? However, whilst I think that would make more sense than

anything right now, it would still require a lot of moving parts to fall into place in order for it

to become so.

First off May should step down quite honestly, but the only way she’s likely to do that is if

she’s forced to and that looks as unlikely as it did before despite her total and utter failure

in the job. Anyway we shall all just have to see what happens (or doesn’t) over the next few

weeks I suppose. Consequently, the pound seems singularly unimpressed by all that

continues to surround it.

Hence the GBPEUR is continuing to edge its way lower this morning and that’s now trading

just below 1.1575 as I write. There could be more downside on this pair if the price starts to

leak back through 1.1550, so a level to be wary off, especially given the underwhelming

performance of the GBPUSD over the past 24hours. From a purely technical perspective, a

weekly close below 1.3000 tonight on the GBPUSD would surely not be positive, whereas a

close back above 1.3125 would be more so.

Meanwhile, the USD and the JPY have both lost a little ground over night. This looks like it

could be linked in part to some M+A demand on the EURJPY stemming from the news that

the Japanese banking giant, MUFG is to buy some aviation assets from Germany’s DZ bank,

to the tune of around EUR 6 billion- not exactly a huge deal, but perhaps a good enough

‘flow’ excuse to push the EURJPY back above 126 this morning?

The combination of a still benign equity backdrop, that noted M+A news and negative

Japanese yields is pushing the USDJPY back up, towards 112 again (112.14 YTD high set on

March 5) this morning and that’s back very close to its 200WMA (weekly moving average

now at 112.04) so likely there will be offers just ahead of that point and potential stop

losses just above it- all worth noting here I think.

Outside of this and all the latest Brexit news what else have we learned this week? Well,

apart from worse than expected UK trade data, the other readings on construction and

manufacturing weren’t actually that bad. The ECB and Mario Draghi were as dovish as might

have been expected, but that was offset by the latest US CPI inflation data coming in lower

than the previous reading. The release of the latest FOMC minutes from their last policy

meeting didn’t exactly provide a clear message for the markets and the dollar either.

Gold did pop higher in the week, back to around $1310 on press reports that China is

continuing to stockpile its reserves of the metal. Whilst that might be true, those reports

didn’t take into account something rather important; China doesn’t actually need to buy any

gold in order to achieve that as it can merely stockpile its own production. Perhaps that’s

why gold is back down this morning, to where it was, before those articles hit the wires?

So, sadly I am not much wiser on all fronts as the week draws to a close.

However, the misnomer of the week, subsequent to the Brexit deadline extension; is that parliament will now take a ‘well earned’ Easter recess! Perhaps we could debate that till the cows come home too! If nothing else, we can at least certainly chew the cud over it!

Important Economic Releases Due later today

12/04- 3.00pm US University of Michigan April Consumer Confidence Index