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Déjà vu

​​​​​​Today's news headlines:

  • ‘Rush of bets on imminent BoE cut leaves analysts urging caution’. In the most aggressive shift since 2016, markets are pricing in a 60% chance of an interest rate cut by the Bank of England in January. Upcoming data releases such as Retail Sales and January’s Purchasing Managers’ Index surveys could make or break the market view. (Bloomberg)
  • ‘Vladimir Putin outlines leadership revamp and picks new PM’. Putin has launched a constitutional overhaul that could allow him to extend his position of power beyond the end of his Presidential term in 2024. Putin announced a referendum to impose changes to the political system aimed at curbing future Presidential powers and enhancing the role of Parliament. (Financial Times)

Teleported

Now that the phase one trade deal has been signed, the outcome is essentially what we had reckoned over the past several weeks; we’ve been transported back to mid-2019 when Chinese tariffs were somewhat lighter and there was cautious optimism about forward progress. The markets have viewed the entire signing event much like Nancy Pelosi, who commented that it was ‘nothing more than a showy television ceremony’. That said, the Greenback has rallied since the turn of the year but has only started taking losses this week, in signs of easing geopolitical tension.  

Bottom Line: Aside from the US/Chinese trade agreement, there was little of substance. With all focus on trade, however, Fed speakers went under the radar. Both Robert Kaplan and Patrick Harker suggested that rates don’t need to move lower and both highlighted concerns over financial stability. In other words, they echoed our warnings about over-inflated asset prices from of H2 2019.

GBP/USD

This morning, the pair extended its upward trajectory following a weaker US Dollar on the London open, reaching the 1.3060 level for the first time this week. The trade-weighted Sterling Index currently trades just below its 50-daily moving average, potentially creating a ceiling for Cable. Alternatively, a close above this key level today may prompt further gains for the pair.

GBP/EUR

Yesterday, GBP/EUR once again failed to close above the 1.17 figure as the Euro and Sterling both extended their gains for the week. On a trade-weighted basis, both currencies are testing resistance at key moving averages which may create flat trading conditions amid a light economic calendar for today.

EUR/USD

The Euro extends this week’s gains against the Dollar as the trade-weighted Index is supported by its 50-daily moving average. Greater volatility could occur this afternoon following key US consumer data and a series of large Option expiries. When a large volume of expiries occur, exchange rates tend to lean towards the largest strike prices as we get nearer to the 3pm expiry.