Tomorrow’s macro highlights:
Greenback finds fresh support as global trade war fears recede.
We are looking at a relatively quiet start to the week’s trade, but the big news of the weekend came from US Treasury Secretary Steve Mnuchin, who declared that the threatened trade war between China and the USA was ‘on hold’. The prospect of punitive tariffs had been seen a dragging on the global economy, but was also poised to pressure the dollar. The fact this threat has been removed - at least for now - has pushed the greenback higher still in the week’s first few hours of trade, with the DXY dollar index pushing out to fresh highs for the year as a result.
Economic news is very thin on the ground for the day ahead and with a run of market holidays between now and the month-end - notably German today then the UK and US next Monday - volumes could be suppressed as a result. This has the potential to heighten volatility in the short term.
The Pound may face some short-term pressure today in the wake of the now-standard comments in the weekend media over Brexit. Boris Johnson made further remarks over the need for a deal to be struck with the EU, rather than the customs backstop proposed last week. The debate here will roll on for some time yet, but any suggestion that the government is unstable adds to downside pressure on the Pound. Given the precarious make-up of the current ruling majority, any threat to the status quo could result in wholesale change, not just a reshuffle at the very top - and the uncertainty this would bring about could truly hammer Sterling.
Looking further ahead, the UK’s economic fortunes will be very much in focus tomorrow as Mark Carney meets the Parliamentary Treasury Select Committee. With the Bank of England having pivoted once again over interest rates, taking what had been seen as a good as guaranteed April rate hike and morphing that into a data-dependent one in August, the Governor is likely to be on the receiving end of some pointed questions. How he responds to those could prove instrumental in how Sterling fares in the early part of tomorrow’s session.
Cable appears to have relinquished its hold on the 1.35 level and is now tracking towards the December lows around 1.33. There’s no shortage of downside risk for the Pound right now, both in terms of politics as well as the economic outlook. The absence of data points today may however limit selling pressures in the short term.
Having lost ground in every session last week, the pair is now back at lows last seen in December 2017. Data may be limited from the Eurozone in the early part of the week, but further Dollar strength could easily see the pair forge its way lower still, with the October lows of 1.16 in sight.
There is a very modest up-trend being established for this pair, although last week’s rally appears to have run out of steam - for now. Consolidation could well be in order over the short term but with key data releases from both the UK and the Eurozone due as the week unfolds, we have the potential for a meaningful break out, especially if this news come with fresh guidance over near term monetary policy.