- The dollar was bleeding again in Asian trade overnight and the euro picked up most of the bid which took EUR/GBP higher for a test of 0.90 the figure – 0.9001 was traded.
- European markets are taking their cues from Wall Street.
- Brexit saga: deal or no deal. Barnier came with, “We are not aiming for a ‘no deal’ scenario but we are prepared for it,” and Raab soothed nerves as well by saying, “Confident that we can reach a deal in October“.
- EUR/GBP is actually moving off the day’s highs and that is where probably best to take cues on Brexit sentiment.
However, the euro’s top was shortlived an the pound took over, sending EUR/GBP 0.8971 the handover low before a bid back to 0.8993 which was faded all the way back to 0.8948 traded – currently, EUR/GBP oscillates at 0.8963 at the time of writing on a correction from the NY lows on the second London fix.
From a fundamental standpoint, the markets hang in the balance of Trump. The S&P 500 is around 1% off its all-time highs in the longest bull market in history. There are fewer concerns over a global trade war which had lifted the DAX by 0.9% yesterday, (currently +0.45% but off its highs for the day) and knocked the dollar down a peg or two from 96.30 yesterday to below the 96 handle to as low as 95.44. Clearly, the markets are not so convinced that Trump will put his most extreme rhetoric into action in relation to his geopolitical hard stance on nations such as China, Iran and Turkey and allies in Europe for that matter – and hence risk appetite has returned into the market while Wall Street breaths a sigh of relief in anticipation of a less hawkish Federal Reserve, discounting an otherwise more inflationary outlook ahead for the US economy, battling with higher import prices due to an outright tariff war.
European markets are taking their cues from Wall Street
European markets are taking their cues from Wall Street and Asia and as such, the euro and pound are moving in tandem on the performance in the greenback. However, the pound is playing catch up and the euro has been stalled in its tracks by the speculative market turning net short in paring longs. This has given the right-hand-side of the cross the advantage, stalling the bulls progress through the 0.89 handle – despite no-deal-Brexit angst.
Looking ahead, however, it is hard to see why those that have just pared their positions in EUR/USD would want to own the euro again vs the greenback. Despite a positive outlook for trade and presuming Trump is just all mouth, rate differentials strongly favour the US dollar and U.S. rates will rise regardless of Trump’s opinion on the dollar or Fed – the futures price in around 70bp of hikes by the end of 2019. EUR/USD is going to struggle at the neckline of the H&S and a resumption of the bear trend that started in April when you bring in the contagion risk of Turkey, EMs and Italy, the DE-US spread and dollar can go much further. However, what the EUR/GBP bears need is some positive news from the Brexit saga.
Brexit saga: deal or no deal
As UK Brexit Minister Dominic Raab heads to Brussels today for the latest round of talks with his EU counterpart, UK Trade Secretary Liam Fox unveiled a plan to support UK exporters. Fox revealed an ambitious new plan to make Britain a “21st century exporting superpower” and he believes that with better use of the UK’s overseas network, new online tools and by building an extensive business to business network, exports can grow significantly. At the same time,
in Barnier’s and Raab’s brief presser today,
Barnier came with, “We are not aiming for a ‘no deal’ scenario but we are prepared for it,” and Raab soothed nerves as well by saying, “Confident that we can reach a deal in October“.
That is sterling bullish overall, but the market took Barnier’s “we are prepared for it” as a reason to fade the recent bid in cable, up from 1.2793 to the high of 1.2878 so far today. EUR/GBP is actually moving off the day’s highs and that is where probably best to take cues on Brexit sentiment.
EUR/GBP levels
The 10-D SMA was left for dust and the 0.90 handle was pierced. There are bullish intentions but volatility is higher and the daily doji candle points to a period of consolidation, if not a correction. 0.9032 remains as a key target as the October 2017 high -(0.9308 comes as the August 2017 high). To the downside, the 2-month uptrend at 0.8877 guard risk down to the 0.8720 triangle lows, (the 15th June low). Further out, the double bottom lows at 0.8697 are exposed.
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