News that the UK could pay to have exclusive access to the European Union’s single market revived hope in the pound markets. Cable rallied to a four-week high, as pound bulls cheerfully welcomed and bought into the idea.
Nevertheless, the bill will be extremely hard to pass and the immediate enthusiasm around the topic should inevitably fade. This being said, the original proposal hints that the UK would attempt to approach the Brexit from a more market friendly angle. In which case, a broad-based recovery in pound could encourage a further GBP/USD rise to 1.2732 (100-day moving average).
We turn flat on euro before the Italian referendum
Italy is under the spotlight heading into the Sunday 4th constitutional referendum. The outcome of the referendum could have a significant impact on short-term euro volatility.
There have been many speculations about Mr. Renzi’s political future, post the referendum.
On the back of the latest news, Prime Minister Renzi would resign if he fails to gather citizens’ support via Sunday’s referendum. Hence, a ‘no’ vote could importantly squeeze Italian politics, as citizen’s veto to the constitutional change would lead the country to an early election, which cold be as soon as in the first quarter of 2017, and favour the rise of the Five Star Movement, which has promised a referendum on Italy’s membership in the euro area.
On flip side of the coin, a ‘yes’ vote would certainly not remedy Italy’s problems, but could well trigger a relief rally across the EUR-crosses.
Although the consensus points at a potential ‘yes’ victory, we remain cautious on the back of limited visibility.
We prefer avoiding euro risk heading into the Italian referendum and turn flat in EUR-crosses.
US labour data
Today’s US non-farm payrolls will certainly be the most insignificant release of the year. The performance of the US jobs markets in November should have little, if no impact on the Federal Reserve’s (Fed) plans to hike interest rates in December. The market assesses a 100% probability for the December rate hike.
Unless a sizeable disillusion, that could imperil the Federal Reserve’s (Fed) plans to hike interest rates in December, any knee-jerk move on the back of the US data should wane rapidly.