Highlighting concerns

Today's news headlines:

‘Court ruling could throw Johnson’s Brexit plan into more disarray’. Today, the UK Supreme Court will give its verdict on whether Prime Minister Boris Johnson acted unlawfully in proroguing Parliament. If the outcome goes against Johnson, Parliament could return sooner than scheduled, providing politicians more time to prevent a no-deal Brexit. (Thomson Reuters)
‘China gives new waivers for tariff-free US soy purchases’. China has released several domestic companies to purchase US soybeans without being subject to tariffs. Some firms purchased up to 1.2 million tons on Monday following a meeting between working-level officials last week. Top negotiators from the US and China are scheduled to meet next month to resolve the trade dispute. (Bloomberg)

The power of words

Yesterday wasn't the reset we were hoping for at the start of the week, mostly because EU Purchasing Managers' Index data came out much worse than expected, highlighting long-standing concerns about the pace of economic decline in the EU. Mario Draghi also spoke yesterday cautioning his fellow colleagues on the European Commission that policy disagreements are 'pretty common', but dissent must be voiced in the correct way so as not to undermine the effectiveness of policy measures. The colleagues who had been rather vocal in dissent were Dutch and German central bank Chiefs, which indicates that the northern mindset will be difficult to shift on monetary policy as it is in the fiscal policy space. The German Ifo business climate reading was released a few minutes ago, modestly beating expectations, but considering it’s near a ten-year low, it’s not much to celebrate.

Bottom line: The modest uptick in sentiment heading into today's open was due to some positive comments from the People’s Bank of China Chief Yi Gang, who dismissed the need for big stimulus. There is little data out today, so the market is likely to trade off news flow more than any other factor. That said, the UK Supreme Court is expected to release a decision today around 10:30. Looking ahead, the Bank of Japan will publish its meeting minutes, and the Reserve Bank of New Zealand is expected to leave policy rates on hold.

GBP/USD

Cable traded flat overnight as investors await the Supreme Court’s ruling on Johnson’s proroguing of Parliament. The outcome could bring short-term volatility for the pair as markets reassess the likelihood of a no-deal Brexit. The trade-weighted Sterling Index remains above the 100-daily moving average—a level that may support the Pound from a significant drop following the court ruling.

GBP/EUR

The pair was supported by the 1.13 level in yesterday’s session, but today’s UK Supreme Court ruling may be the driving force for a close below the support level. Yesterday, the Euro faced selling pressure early on in London trading following weaker-than-expected European PMI’s and failed to rebound fully. This also supported GBP/EUR early in the week.

EUR/USD

Yesterday, EUR/USD dipped below the 1.10 level following weaker-than-expected PMI data. This morning’s survey of business climate sentiment and expectations paints a similar picture which could trigger further selling pressure in today’s session.