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