- Rates: Withdrawal bill passed, but heading for extra time
British MP’s finally managing to back a brexit deal and normally avoiding the horrorscenario of a no deal brexit at the end of the month, remove quite some geopolitical risk. We therefore think that any rebound in core bonds (MP’s blocked Johnson’s timetable) shouldn’t drag that far. Especially given that we see some upside risks to tomorrow’s EMU PMI’s. - Currencies: Euro falling prey to (modest) profit taking on Brexit and risk-off
EUR/USD made a step backward as the recent risk-rebound stalled and as the Brexit carrousel probably will develop an additional round. However, for now, a constructive technical set-up remains in place. Sterling showed a similar trading pattern. The test of EUR/GBP 0.8575 is rejected, even as sterling losses stay modest, too.
The Sunrise Headlines
- WS slipped (up to -0.72%), giving up early gains as Brexit and other geopolitical concerns dented risk appetite and overshadowed solid earnings so far. Asian markets edged lower, with Hong Kong underperforming.
- The Chinese government is formulating a plan to replace Hong Kong’s leader, Carrie Lam, with an “interim” chief executive by March amid violent protests against her administration, Financial Times reported.
- The British parliament endorsed the general principles of Boris Johnson’s Brexit deal but voted down his accelerated timetable to rush his deal into law, leaving proceedings in limbo and British elections looking likely.
- US Commerce Secretary Wilbur Ross has suggested in an interview with the Financial Times that new negotiations with the EU to ease the trade dispute could be an alternative to imposing tariffs on automotive imports next month.
- Russia agreed a deal with Turkey to deploy Russian forces in northeast Syria, helping the country to drive out Kurdish YPG fighters from the Turkish border and create a buffer zone.
- The German government is set to nominate Isabel Schnabel to the executive board of the ECB. Schnabel is considered to have more moderate views on monetary policy, potentially marking a shift in the ECB’s strategy and policy.
- Today’s economic calendar is little inspiring. Sentiment will mainly be driven by Brexit/trade developments and key events later this week (central banks’ rate decision, EMU PMI’s, Pence speech, Q3 earnings). The US taps the bond market.
Currencies: Euro Falling Prey To (Modest) Profit Taking On Brexit And Risk-Off
Euro eases, albeit modestly, on Brexit and risk-off
Global (FX) traders experienced another ‘waiting for Godot’ session yesterday.The script for the Brexit vote in the UK Parliament suggested the stalemate would likely persist. Contrary to Monday, global investors also turn more cautious. EUR/USD fell prey to modest profit taking. The pair rebounded temporary back to the 1.1150 after the UK parliament approved the Brexit deal in principle, just to turn back south after MP’s rejected Johnson’s accelerated timetable. EUR/USD closed at 1.1125 (from 1.1150). USD/JPY also drifted south the close at 108.49.
Asian equities join the cautious approach from WS, but losses stay modest. The yuan is losing a few ticks (USD/CNY 7.0825). USD/JPY is trading on the backfoot (108.35 area) and so is EUR/USD (1.1120). The Aussie dollar is also ceding ground due to the risk-off, but losses also stay modest for now (0.6845 area). Today, the eco calendar is thin. French confidence data are interesting. Recent data were not that bad, and a positive surprise could support the case of a tentative bottoming of EMU activity, but the report probably won’t affect EUR/USD trading much. Tomorrow’s PMI’s and Friday’s Ifo have more potential to move the euro. A risk-off correction usually doesn’t help the euro. However, with markets betting on more Fed rate cuts next week (and beyond), the damage for EUR/USD might be limited.
The EUR/USD picture turned more constructive as the pair settled above 1.10 but follow-through gains were modest. Brexit uncertainty hasn’t been removed (yet?). At the same time, the dollar probably won’t make much headway ahead of the Oct 30 Fed meeting. EUR/USD 1.1250 is next reference on the technical charts. A break isn’t evident unless some high-profile euro positive news kicks in (Brexit, better PMI’s…)
EUR/GBP developed an erratic trading pattern as investors counted down to the Brexit votes in Parliament. EUR/GBP spiked to the 0.8580 support area after the approval of the Brexit deal in principle but rebounded as the MP’s rejecting the PM’s timetable only confirmed another round of the Brexit carrousel. EUR/GBP closed at 0.8648. Markets now look out whether UK PM Johnson will be able to trigger elections. We expect more erratic wait-and-see trading in EUR/GBP. For now, sterling looks quite resilient. We look out for comments from the BoE. The test of the 0.8675 support is rejected, at least for now.
EUR/GBP: test 0.8575 support rejected as Brexit stalemate persists. Even so, sterling loss remains modest for now
