Last week was about negative sentiment and concerns on tariffs and trade wars. This is likely to ebb and flow over the comings days, weeks and months but as with much of the current US administration’s policy, there is always room for negotiations, so things are likely not as bad as they first seem. The art of the deal in action some might say, we’ve seen this so often from Trump in the last 12 months. Take an aggressive stance, accept some push back, strike somewhere in the middle and achieve something. It may not be perfect, it may not always be presidential, it may not always be correct but it’s working for him.
In the US some stocks closed the week in official correction territory, down over 10% from the Jan highs, others are just hanging on below that level and of course European bourses are not immune with the DAX, CAC and Stoxx 600 all closing the week down over 2% . Some positive comments over the weekend from Mnuchin saying he hopes a “truce” can be made with China has helped ease some of that tension in markets, the Nikkei is up over .7% to open the week although Chinese stocks remain weak down .75%. The European open has been positive thus far this morning, plenty of green on major indices. The USD has faced selling for 3 of the last 4 sessions and looks under some pressure today, GBP and euro have both benefited from the greenbacks weakness while USDJPY has been a major underperformer, as the safe haven Yen picks up flow.
Brexit remains the key for GBP, and while last week’s BOE was certainly taken with a hawkish stance, helping EURGBP to the lowest levels since June 2017, without further positivity on Brexit talks, sterling will struggle to advance. Last weekend there was progress made on the transition, which helped sterling along with the hawkish BOE, but over the weekend the push back commenced. Comments in the press suggesting there will be “no deal without a deal” have resurfaced suggesting that without access to the single market the UK may look to leave without their divorce payment to the EU. And let’s not forget about Northern Ireland and the boarder issue. This is quickly becoming the major stumbling block and the elephant in the room as other negotiations continue to progress, the boarder issue remains nowhere near being resolved. The longer this goes on the greater the probability of some major discord from one side or another. Slow grind higher in GBPUSD, hardly a breakout and more on USD weakness vs GBP strength, 1.4220 marks upside resistance with 1.4278 above that and post Brexit highs towards 1.4345 the high point to watch. EURGBP still holding around the .8730 area, not much change last few days and unless we see a push lower this week we’ll almost certainly see rotation higher into mid-range. .8758/60 is first resistance and then .8778 above that is the bull/bear line for me.
Not much in terms of major data today from Europe or the US. Fed speakers are likely to be the bigger attraction later in the day. The Fed’s Bill Dudley speaks later today on financial regulation while Mester speaks later in the day on monetary policy, with Quarles speaking later this evening in Atlanta. It’s also a holiday shortened week so beware of some thinning liquidity later in the week and without too much major data due, we could well be driven by the headlines for much of the week. EURUSD held below 1.2400 for now with 1.2448 next resistance above that. While 1.2244 area is the key to downside and provides support for now.