- There has been some tough talk from Barnier from over the weekend.
- The pound has started out under pressure in early Asia, losing ground in the crosses as well.
- Bulls cling to the fact that, for now, at least, both sides continue to work towards a Brexit deal.
GBP/JPY has continued with its downside on geopolitical & EM risks priced into the yen, currently trades below the 50-D SMA and en route to the 10 and 21-D SMAs. EUR/GBP has recovered back above the 21-D SMA after fanning out a lower downside range within the ascending daily channel.
GBP/USD probably needs an extension to the downside below the 21-D SMA to confirm a switch up in the demand that took place in August although, the trend is bearish and uncertainties are back in play, nullifying the prior optimism causing the pound to soar when EU negotiator Michel Barnier’s stated, “We are prepared to offer Britain a partnership such as there has never been with any other third country.”
However, the pound has gapped lower at the open some 50 pips, (1.2954 close to a low of 1.2907), on headlines from the weekend that he said he was “strongly opposed” to Theresa May’s Chequers proposals on future trade. The negotiations between the UK and the EU have an informal October deadline, but Mr Barnier said this could be extended to mid-November.
Tough talk from Barnier:
- “Plans for a “common rulebook” for goods but not services were not in the EU’s interests.”
- “Our own ecosystem has grown over decades,” he said. “You can not play with it by picking pieces.”
- “The British have a choice…They could stay in the single market, like Norway, which is also not a member of the EU – but they would then have to take over all the associated rules and contributions to European solidarity. It is your choice.”
- “But if we let the British pick the raisins out of our rules, that would have serious consequences.
- “Then all sorts of other third countries could insist that we offer them the same benefits.”
- “We have a coherent market for goods, services, capital and people – our own ecosystem that has grown over decades,” he said.
- “You can not play with it by picking pieces. There is another reason why I strongly oppose the British proposal.”
- “There are services in every product. In your mobile phone, for example, it is 20 to 40 percent of the total value.”
Flipping over the Sunday Telegraph, PM May wrote that she was “confident” a “good deal” could be reached although they will prepare for a no-deal scenario nonetheless.
No deal Brexit back to the fore, negative for the pound on a busy week ahead
While it might be probably that the China-US trade spat takes up most of the noise this week after Trump upping the ante by imposing more tariffs on Chinese imports, it is still going to be a key week ahead for sterling traders.
We have the following data (Mini-previews courtesy of analysts at Nomura, “The week ahead”):
- UK PMI surveys, Aug (Mon-Weds): The July composite PMI took a turn for the worse thanks largely to the deterioration in the services component (manufacturing was down only modestly, while construction was up).
- UK BRC retail sales, Aug (Tuesday): Official retail sales growth has improved of late. Indeed, the 3m average annual rate rose to 3.6% in July, its highest for over a year.
- UK BoE inflation expectations survey (Friday): There are three main numbers to watch in this Q3 report: i) coming year inflation expectations, which were running at 2.9%in Q2, ii) inflation in the 12m after that, which was also 2.9% in Q2, and iii) longer-term expectations at 3.6%. All of these figures were quite high – in-fact they were last higher at the end of 2013.”
A final word of solace
A final word of solace for sterling bulls might be, if there is anything positive to take from Mr Barnier’s comments last week, it is that both sides continue to work towards a deal and the latest weekend hard-line comments from him don’t mean they are giving up just yet.
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