Yesterday it was the Eurozone that grabbed the headlines, with Brexit and the US/China
trade dispute taking something of a backseat. Naturally, that might have all changed by the
time you come to read this with the UK Supreme court ruling due out at 10.30am this
morning-more on that in a minute.
Besides, notwithstanding what may emerge from that, the news from Europe yesterday,
and more specifically from Germany, was not good with the latest manufacturing data
falling to its lowest level in more than a decade. In fact, the preliminary flash reading of the
September purchasing managers index at 41.4 was lower than its worst level during the
For my money this is clear evidence, if ever one needed it, that the German economy is
already in recession. That’s a position that I have been pretty adamant about for quite a few
months now. The powerhouse and cornerstone of the entire European economy isn’t just
slowing down; it seems to be falling off a cliff. No wonder then that the loudest European
voices urging for a Brexit deal seem to be coming from the Rhineland.
The one thing I think we can all appreciate, is that a ‘no deal’ Brexit won’t just be bad for the
UK; it will be equally damaging for Germany. So, given the current weak state of the German
economy, the country is really not well placed to cope with ‘no deal. Therefore, perhaps its
hardly surprising that Merkel has been standout European leader trying to find a realistic
solution to the Brexit impasse.
On the flip side of that, comments yesterday from the French EU chief Brexit negotiator,
Michel Barnier pretty much summed up the French position when he declared that the
latest UK proposals ‘have no basis for reaching an agreement.’ Whilst that might be truism,
continued refusal to reopen the withdrawal agreement surely has little ‘basis’ either.
So, given this latest German economic news, it was hardly surprising that the EURUSD fell
below 1.10 again, on its way to a session low of 1.0966 yesterday. Actually, what was even
more surprising for me was the fact that it didn’t trade lower than that. Perhaps we can
probably thank the usual reserve manager suspects for that. However, a breakdown below
1.0925 might not be far away now- maybe we shall find out about that in due course.
Turning back to the UK supreme court judgement this morning and what impact that might
have on the pound. Well, conventional wisdom would suggest that if the government loses
the case today, then the pound will jump higher, simply on the basis that such a judgement
would reduce the chances of a no deal departure.
Conversely, a victory for the government could have an opposite impact. However, before
anyone jumps immediately to such a binary conclusion, I fear it won’t be anything like as
clear cut and straightforward as that. The history of past 3 years certainly leads me to a
positions of extreme caution on taking anything for granted when it comes to Brexit.
So with all that in mind, finally this morning another brief look at the GBPEUR chart that I
showed you in a previous article.
I have updated that this morning as of around 7am and you can see that the price has pretty
much nailed that 1.1391 retracement target that I highlighted. The question now is; where
to from here? Well, all I can say is that from a technical perspective this move may have
satisfied the necessary upside correction. However, as to whether that is the case will once
again rest with the politicians I am afraid.
Important Economic Releases/Events Due This Week
24/09- 9.00am German September IFO Business Climate Index
24/09- 3.00pm US September Consumer Confidence Index
25/09- 12.50am Bank of Japan Releases Minutes of September Policy Meeting
25/09- 3.00am New Zealand- RBNZ Monetary Policy Decision
(Consensus Benchmark Rate Unchanged at 1.0%)
25/09- 11.00am UK CBI Trends September Reported Sales
26/09- 9.00am ECB Publishes Economic Bulletin
26/09- 1.30pm US Final Revision to Q2 GDP
26/09- 2.30pm ECB Boss Mario Draghi Speaks in Frankfurt
26/09- 2.45pm BOE Boss Mark Carney Speaks in Frankfurt
27/09- 1.30pm US August Durable Goods Orders Revision
27/09- 3.00pm US University of Michigan Consumer Sentiment Index Revision