So, the Prime Minister has managed to a get a third bite at trying to get her withdrawal deal
through parliament later today. As I write it would seem that her chances of doing that are
slim at best, but accurately predicting just how many of the wavering politicians will vote
when faced with what looks like a final fait accompli is impossible.
One thing the markets fear is that this will still not end well and that explains why the pound
has been beaten back from above 1.32, close to 1.30 as the markets open today. Previously
the GBPUSD had been swinging in between 1.3150-1.3250 for most of the past week as
optimism generally prevailed and a seriously big player sat both sides of that range- more
on the pound in a minute, but first a word about the dollar as we head into the final trading
day of the first quarter.
The US currency has come out on top so far this week even as US yields have continued to
fall over the past few days. So, despite that the USD index is back above 97.00 as it edges its
way towards that important 97.71 level again. Quite simply I think this is down to the fact
that even as US yields dropped sharply this week, so did those of Germany and Japan and
the moves in those markets have clearly been more damaging to their currencies than for
the dollar.
Perhaps the simple truth of all this appears to have come in the form of dollar demand in
order to buy US treasuries. You see, one simply cannot buy those US bonds if one doesn’t
have the necessary dollars on board in the first place and that is what might lie at the heart
of the dollar’s rebound this week.
Perhaps the most surprising move of all this week, under the current circumstances, has
been seen in gold, which took a bit of a kicking yesterday, dropping through support around
$1305-$1300 and subsequently tailing off below $1290, where it still resides as I write this
article this morning. I think there’s a connection here too in that it looks to me like a
liquidation of gold positions ahead of the quarter end and rotation back into US treasuries
explains why gold has fallen, and somewhat perversely, at the same time as US yields have
dropped too.
Now the talk is that there will be demand to sell the dollar into the month end fixes later
today, but I remain somewhat sceptical about that and whilst not ruling it out of course, it
does remain to be seen. Meanwhile, as I just said, the US currency is back closer to its own
important ‘red line’ which I will again show you via a chart below.
This is of course a chart that I have shared with you all previously, but updated this morning
and you can see the price edging its way back towards the parallel ‘red line’, that I have
drawn in again here, that defines a ‘triple top’ at the level. An upside break of this level
could be explosively positive for the US currency and clearly still a key point to be very
mindful of.
Talking of ‘red lines’ back to the pound then. Well, to use a rather obvious baseball analogy,
its ‘three strikes and you’re out’ when it comes to the third reading of the PM’s withdrawal
bill later today. Perhaps the hollowest gesture of the week has been May’s impassioned
plea to her colleagues, stating that she will step down if they vote her bill through.
Martyrdom? Heck no, she’s going sooner rather than later anyway, and certainly not leading
the party into another general election when it comes. Meantime the prize for best, most
deliberate Freudian slip of the week goes to Victoria Derbyshire, who during her live show
yesterday, managed to refer to ‘support for WTO rules’ as ‘support for WTF rules’. Pretty
much a tenet I suspect endorsing where many are on all this now!
So, what’s going to happen then? Well, your guess is still as good as mine, but assuming this
vote today is rejected then parliament has until the 12th April now to come up with a plan B
and that still might mean no deal or no Brexit at all. Whilst a rejection of ‘no deal’ is the sole
thing that parliament is agreed on, the greatest irony of all in this sorry tale, is the final
outcome might yet be the exact opposite of that concurrence.
Anyway a good many ‘professional’ punters who bought the pound over recent sessions, on
little more than optimism as far as I can see; have been forced onto the sword once again as
those stops all get tripped now that we are back, close to 1.30 today. All I can say is that
hedging the rallies has still proved to be the wisest course of action in all this whilst trying to
buy into something that is, as yet imponderable has been nothing short of a disaster for
those that have tried.
Naturally, should a deal pass today then it will be an entirely different matter. However,
given we’ve had more twists and turns than the Amazon already, its surely a case of waiting
until there is at least some clarity before making such a judgement call?
Important Economic Releases Due today
29/03- 12.30pm Canadian January Annualized GDP Report