There was a little bit of everything in markets yesterday. Our focus is always closer to home and any Brexit related headline quickly has the desk’s attention so when we saw the newsflash that German sources suggested the UK were to drop key Brexit demands it certainly got our attention. This quickly resulted in a rally in GBP of approximately 1%. I’m always sceptical when I see “sources” have been talking to the press, there is little to substantiate these claims and within an hour an official German spokesman refuted the earlier claims. GBP pairs quickly gave back over half of their earlier gains but it’s still resulted in a 1.8% round trip on some GBP pairs. This is where things stand with GBP, fundamental data has little lasting impact, that much is clear. Weaker manufacturing and construction PMI’s failed to drive much reaction from the pound earlier in the week, then strong services PMI data yesterday also failed to lift the pound in early trade – yet the mere mention of something Brexit related gets sterling moving and as we have seen recently the reaction to favourable Brexit headlines provides a more aggressive reaction in GBP pairs. (by favourable I simply mean a less disruptive Brexit vs no deal Brexit currently being priced).
Donald Trump’s administration is still doing battle on many fronts. NAFTA talks resumed yesterday with the Canadians now optimistic a fair deal for all participating members can be reached, interestingly Canadian PM Trudeau didn’t go to Washington for the talks. China also hit back at the US this morning, verbally at least, saying they will have to respond should the US impose additional tariffs and their measures will be retaliatory and based on what the US does. While that tit for tat battle continues, Trump is also facing many challenges at home. Last night he called treason and demanded the New York Times release the name of the anonymous author (a senior Whitehouse official) of an open essay they published, where the author suggested they had discussed removing him from office due to his “instability”. There are just so many ongoing distractions for this administration and while Trump is happy to tell us every day that markets are at record highs, the broader market is showing signs of concerns and we may well see this concerns creep into US growth figures into the end of the year. As it stands two more rate hikes this year remain baked into the USD and we’ll only see some real USD weakening if we begin to see these priced out. If anything I feel the market may be underestimating the Fed’s path next year with only two hikes currently priced for 2019.
EURUSD once again bounced from the 1.1530 area and we quickly find ourselves back above 1.1600 once again. This pair now trapped in a range between 1.1720/30 area down to 1.1530 for now and unless we see some substantial move in central bank policy that is unlikely to change. For now 1.1660 offers light resistance to a move higher.
EURGBP in a similar mode, albeit to the topside of its 2 year range. Any rally above .9000 finds itself quickly running into sellers, .9030/40 area proving recent high points and resistance to moves back to .9100. .8960/50 area providing support for any moves lower.
GBPUSD also stuck in a range from 1.3030/40 area down to 1.2800.