Market Drivers August 16, 2019
Europe and Asia
No data
North America
USD Building Permits/Starts 8:30
USD U of M 10:00
Financial markets started the final day of the week in a decidedly better mood with risk on flows all across equity markets as sentiment stabilized a bit.
The dollar was stronger against both the euro and the yen while commodity pairs held steady and cable powered through the 1.2150 figure after a week of better than expected economic results.
There are no major economic releases today, so FX is likely to be driven by equity flows and geopolitical headlines, but assuming the markets see no further exogenous shocks on trade or political conflict, the mood is one of repair and retrace as short covering flows dominate.
The clear winner of the night us cable which is testing the 1.2150 level once again after having held support at 1.2000 earlier this week. The Brexit situation remains as clear as mud with Jeremy Corbyn flailing helplessly inn trying to compose some sort of organized opposition to no deal exit while Boris Johnson continues with his hard-nosed message enjoying a bump in the polls. The true political gamesmanship is not due to start until Parliament comes back in September and cable volatility may well return at that time, but for now the markets have decided to focus on the fact that the UK is putting forth some of the best numbers on wage growth, jobs and consumer spending in the G-7 universe even as its business sector is reeling from Brexit uncertainty.
As we noted yesterday any compromise on the Brexit negotiations should quickly verticalize sterling through the 1.2500 figure as most analysts believe the currency is deeply oversold due to political risk, but at the same time the prospect of a no-deal Brexit could create unprecedented uncertainty and we could quickly drop below 1.2000. For now, however, the market has clearly decided in favor of the pound and the pair continues to recover while politicians jockey for positioning during the last dog days of summer.