The Brexit dialogue between the E.U. and U.K. takes an unexpected turn, the U.S. trade deficit for November beats forecast, as the country becomes a net exporter of energy
Equity markets in both Europe and the USA appeared to tread water during Wednesday’s trading sessions, with all the major equity indices oscillating in tight ranges, around the daily pivot points. After breaking up through the critical psyche handle of 7,000, then breaching 7,100 over recent days, the U.K. FTSE 100 appears to be struggling for reasons to justify pushing higher, unless sterling falls dramatically, in a correlated trade. And it’s unlikely that the U.K. BoE will provide such justification for a sterling move on Thursday at 12:00pm U.K. time, as the central bank is odds on to reveal they’ve kept the base interest rate unchanged at 0.75%.
As always, it’s not necessarily the rate decision that moves markets, it’s often the narrative delivered in the press conference which accompanies the rate setting announcement, that causes fireworks. Mark Carney, the Governor of the Bank of England will surely concentrate on outlining what ammunition he can bring to the table, in the event Brexit goes badly after March 29th.
The U.S. NASDAQ index reclaimed its 7,000 level in January 2019, to post a year high over 7,400 in early February. After experiencing a slump down to circa 6,150 during December’s sell off, the tech index will now rely on a bullish earnings season to revisit its record high of 8,133, printed in October 2018. America’s trade deficit with the rest of the world narrowed in November, due to a large drop in imports. The gap between imports and exports narrowed to $49.3b in November, the Census Bureau reported, down from $55.7b in October. Imports shrank by 2.9%, mainly due to fewer mobile phones and less petroleum being imported; the USA became a net exporter of energy in late 2018, following the recent shale oil boom.
In contrast with the equity markets, several of the major FX pairs experienced volatility during Wednesday’s sessions, the most prominent activity was reserved for both Australasian currencies; AUD and NZD. Both currencies slumped in value versus USD, after the RBA central bank of Australia delivered a dovish tone, in terms of monetary policy, forward guidance. The Governor of the RBA indicated that the central bank could be persuaded to cut the cash rate further, from its record low of 1.5%, where it’s remained for a record 30 months, if the Aussie economy begins to falter.
By 7:00pm UK time, AUD/USD traded down 1.66% after crashing through the third level of support S3, with NZD/USD down 0.88%, as it fell through S2. The pattern of AUD’s slump was replicated by all the Aussie cross pairs. USD/JPY closed out the day close to flat at circa 109.1, with EUR/USD down 0.31%, trading just below the 114.00 round number at 1.136.
GBP/USD was trading flat at 7:00pm, the major pair traded in an extremely tight range, close to the daily pivot point level, whilst remaining gravitated to the key round number/handle of 1.300, which is where the 200 DMA (when observed on a daily chart) is also located. Sterling did register significant gains versus: CHF, CAD and AUD and NZD during the day’s sessions, but slipped versus one of its major peers, the euro. EUR/GBP traded up by circa 0.22% at 0.878, whilst trading close to the daily pivot point. The cross pair is still down circa -2.14% monthly, but close to flat, when viewed on a year on year basis.
It appears that the Brexit recriminations and blame game have already begun, based on Donald Tusk’s provocative statement on the current situation. The European council president warned of a “special place in hell for those who backed Brexit, without a plan”. The European parliament’s Brexit coordinator, Guy Verhofstadt, tweeted in support of his colleague: “Well, I doubt Lucifer would welcome them, as after what they did to Britain, they would even manage to divide hell.”
Sterling could come under close scrutiny tomorrow depending on what’s leaked from the meeting Mrs. May is scheduled to have with Mr. Juncker, a meeting which many in the E.U. are decrying as a waste of time, based on their unwavering commitment not to reopen negotiations on the withdrawal agreement. If no progress is made, the U.K. prime minister then has up until Wednesday February 13th to come up with an alternative plan, to put before Parliament for a vote.
The latest data from the USA concerning new unemployment claims and continuous claims are published on Thursday afternoon at 1:30pm U.K. time, the Reuters forecasts suggest a slight fall in both counts, after the government shutdown ended.
Thereafter, the other calendar news of interest to FX traders concerns a raft of data from Japan. To include; household spending, trade balance, current account balance, housing and banking loans. Cash earnings and the ECO watch survey will also be published. Slightly later in the Asian session, the latest bond purchases by Japan will be declared, followed by the up to date bankruptcy data.
This significant data dump onto the market, during a time when FX liquidity can be thinner, has the power to move the market for yen, depending on how the data is translated by analysts and FX traders. The outright bond purchases by the BOJ (Bank of Japan), varying in length from 1-10 years, as part of the BOJ’s super loose monetary policy stimulus, will be carefully monitored.
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