Decision time

To be perfectly honest I really didn’t want to devote any narrative to Brexit today, but given the importance of this week there wasn’t much choice really. So, the time has finally arrived when parliament must make up its mind whether or not to back the Prime Minister’s transitional Brexit deal or vote it down tomorrow. I think for most people reading this; the potential outcome permutations have been covered many times already, and to which I have already added my pennyworth in previous articles.

We are now in week three of the new year and the pound has recovered from its JPY induced breakdown that saw the GBPUSD fall to as low as 1.2441 on 2nd January, to back above 1.2850 in overnight Asian trading today. Whilst the rebound in the pound is somewhat surprising, it might owe much to the dollar and risk generally, as opposed to anything directly positive for the currency itself.

Having said that the GBPEUR has also rebounded to as high as 1.1235 overnight following a dip below 1.10 on that same day-2nd January. So, perhaps this GBP rebound is not just about the dollar or the JPY. Clearly there has to be an element of GBP short covering taking place before the vote tomorrow.

From a purely technical perspective alone there is still a chance of a further lift in the GBPUSD, perhaps to 1.30-1.31, but beyond that I am really not sure. From a personal perspective I still have small dollar liabilities for later this year that I need to hedge. That means anything above 1.30 and I will be looking to embark on some of that, if indeed I get the chance of course. In this regard I can only refer you back to an article I penned here on 9th November where I looked at ‘prospect Theory’- still available to view on the company website.

So, even at this 12th hour Teresa May is still continuing her policy of political blackmail- a policy that is highly likely to fail anyway, but that hasn’t stopped her. Given the now 3day ‘amendment’ deadline imposed on her to come up with a ‘Plan B’ following the defeat of this Brexit bill tomorrow perhaps the more interesting thing in all this will be to see just what exactly that plan B might entail, or indeed if she has one at all?

Departure on 29th March is enshrined in law and so there’s not much chance of a second plebiscite for that reason alone, unless of course that Act can be removed from the statute books? However, suggestions in the press have come up with the idea of an article 50 extension as touted by the Evening Standard just last week. So, whilst I think we have all probably had our fill of all this, it has unfortunately not yet run its course. Whatever the outcome tomorrow that surely won’t be the end of it despite the most urgent need for some sort of closure before we all spontaneously self combust!

Meantime, the dollar did gain some traction on Friday, even as the latest CPI data confirmed a slow down of inflation in December. It was actually a separate data release showing average wages rising well above expectation/trend over the same period that really helped the US currency rebound ahead of the weekend. Certainly something for the Fed to chew on if nothing else.

This morning the latest trade data from China has sent Asian markets (apart from Japan which is closed today) into the red. The quite seismic drop off in Chinese imports has also impacted the JPY and the commodity currencies as it surely confirms the slow down in Chinese economic activity that the markets are most concerned about- more so than the US government shut down setting records as it enters a fourth week. At the same time, we are waiting to see what, if any kind of agreement the US and Chinese negotiators have come up with on trade. Nothing concrete yet it would seem.

Meantime, what is clear from the import data today is that Chinese growth is fast decelerating, faster than most probably appreciate. Years back there used to be a market adage- ‘where the US goes the rest of the world will follow.’ Well, that adage surely concerns a new protagonist these days doesn’t it?