EUR: Can we hang on?
EUR/USD has run higher in the past day or so courtesy of some comments from Fed Chair Powell about the prospects for future interest rate increases in the States next year.
The question, however, is if this is a turning point for EUR/USD or merely a blip?
For now, we have to think that the range in EUR/USD of 1.1215 to 1.1460 remains in place with significant resistance to additional moves higher coming in at 1.1530 and 1.1600. Conditions are set to prevent EUR/USD from gaining too much ground in the short term.
Of course, the big influences that have kept EUR/USD lower since April – trade, Italy and Brexit – are still having their effect.
This weekend will see Donald Trump meet with Chinese President Xi in Argentina and the outcome of their dinner on Saturday will likely drive the US dollar into the end of the year. Any concessions offered by Trump will likely prove dollar negative although the overall picture of weaker global demand is not something that will help the EUR in itself.
Unless there are further Brexit or Italy headlines over the weekend – entirely possible given their volatile nature – we think that their impact on the EUR will remain vague.
GBP: Waiting on the vote
Sterling has really deadened in the past week or so as we wait on the outcome of the vote in parliament on the current Brexit deal on December 11th.
The closer we get to the Article 50 deadline of March 29th without a deal, sterling will continue to trade in a binary manner; higher on good headlines, lower on negative ones, with the economic data largely being forgotten about.
It bears repeating that we think that the government loses the first vote – if only because the opposition will want to put as much pressure on what is seen as is a weak government – bit enough cosmetics are extracted from the EU to allow the opposition to rally around the need for a deal on a second vote.
The view that a defeat for the government would prompt a collapse in the value of the pound has rapidly become consensus which, in our eyes, therefore limits the chances that the collapse will happen. For my money, I think any defeat for the government will see sterling move lower although the pound has recently moved higher, quicker on good news than lower on bad news. In other words, losses could be sharp but a relief rally on a deal may also be quick.
It, therefore, stands to reason that sterling volatility is all but assured within this time frame; politicians and the pound aren’t suddenly about to start getting along.
USD: Saturday night dinner
The dollar has not reacted to the latest travails for President Trump but is still weaker following Wednesday’s speech from Fed Chair Jerome Powell that hinted at a shift in policy in 2019.
As with the euro, we are keeping an eye on the dinner between Presidents Trump and Xi on Saturday evening that could allow for a softening of the rhetoric over trade policy between the two, something that could further push the USD lower as we head into December.
by Rachel Hocking