Market News & Insights
23 July 2018

Geopolitics Front and Centre

Friday saw continued heavy selling of the USD following President Donald Trump’s comments on currency manipulation, US interest rates and an overly strong USD impacting US trade. Not quite what we’d expect to see from a President who is meant to be impartial to Fed activity but Trump has always voiced his concerns on the USD being too strong and I guess this isn’t going to stop. For what’s It’s worth the Feds Bullard commented over the weekend that Trump’s comments wouldn’t impact rate decisions and that’s more than likely to case, however his point is clear and while he’s looking at multiple trade wars the strength of the USD will have its part to play. Over the weekend US Trade Secretary Mnuchin reiterated the US’s long term commitment to a strong USD, the dollar not reacting much to those comments, and in fact is marginally lower to start the week.

There was plenty of press headlines over the weekend addressing Brexit and while the news flow was not great, the pound has started the week on a slightly firmer footing. GBPUSD continuing its bounce from 10 month lows below 1.3000, while EURGBP drops back from 4 month highs which came in at .8958. We have certainly seen a step up in “No Deal” preparations in recent weeks and it’s something that’s quite hard to fathom that so many are unaware of what an impact this will have. The public has spoken and the government must deliver, but it needs to be something workable for both parties (easier said than done I know). The “no deal is better than a bad deal” rhetoric that’s being spewed out by some sections is just irresponsible. No deal will bring the UK economy to a standstill, not even actually, it will put it into a downward spiral with goods stuck at ports, and most trade more or less stopping dead with the EU. This isn’t scare tactics, its reality. As for the City of London and passporting rights, again there will be billion in trade wiped from the UK economy. This isn’t bias, or trying to scaremonger – The UK voted for Brexit and they deserve their government to deliver what was voted for – but it must be done with the minimum disruption to the UK economy and the “no deal” scenario is just about as bad a delivery as anyone could have envisaged. We’ll wait and see anyway, we’ve been here before and the Brexit doldrums continue but we’ve always bounced back on optimism when progress is made and I’m hopeful this will be the case again.

Today’s calendar is dead with only consumer confidence from the Eurozone to watch and some home sales data from the states. Geopolitical escalations are likely our only chance of some action today, US President was on twitter again this morning and wasn’t holding back replying to comments from the Iranian President. The initial shots across the bow came from Iran with Rouhani stating “war with Iran would be the mother of all wars, so Trump hit back in his own way, on twitter and in all block capitals telling Iran to never threaten the US again or face the consequences. Needless to say this is a concerning development but only verbal posturing for now.

EURUSD range looking at string resistance ahead of 1.1800, but 1.1750 held Friday highs and overnight as well so looks as good a level as any for initial resistance. Major support again comes in as we approach 1.1550 area.
GBPUSD pressing higher but 1.3300 will likely act as resistance, while sub 1.3000 continues to attract as long as we stay below there.
EURGBP looking at .8960 resistance to moves higher while .8830 no a string support zone for moves lower.