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House of mirrors

​​​​​Today's news headlines:

  • ‘EU will “most likely” agree January 31st Brexit delay on Monday – French source’. This morning, a French source close to French President Macron said the European Union is likely to agree on another three-month Brexit extension. The news comes after Macron blocked the same extension last week, claiming there was not enough justification for another lengthy Brexit delay. (Thomson Reuters)
  • ‘Argentina tightens currency controls after Fernandez victory’. Argentina’s central bank is restricting US Dollar purchases following Alberto Fernandez’s election victory in order to protect the nation’s international reserves. Under the new controls, savers will only be able to buy $200 per month down from $10,000 per month previously. The new controls risk causing the black-market exchange rate to sky-rocket as Argentines rush to buy US Dollars. (Bloomberg)

Aiming for clarity

In many ways, Brexit has proved to be like a funfair house of mirrors. Every time we open a door and take a step forward, we’re confronted by a fresh set of mirrors, and there’s no end in sight. Last week, Boris Johnson made some forward progress, but he can’t quite get his withdrawal agreement passed. He’s instead pushing for a general election in December, where he’s expected to prevail, though not necessarily win a majority. Across the Channel, European leadership has been mulling the appropriate length for a deadline extension; January 31st seems to be the most probable date. A vote for a snap election is expected to occur at some stage today.

The start of this week is quite bare from a data perspective; conversely, the back half of the week is chocked full of data releases, including three central bank decisions. The Bank of Japan is widely expected to stand firm, avoiding additional stimulus measures; the Bank of Canada is expected to stand pat; while the Federal Reserve is most likely going to decrease interest rates by 0.25%. The Fed’s accompanying statement will be under intense scrutiny. Back in July, Chairman Powell characterised the first interest rate decrease in a decade as a ‘mid-cycle correction’ which is to suggest Fed officials don’t foresee the need for continual loosening. In the minds of investors, three consecutive rate cuts appear to be the boundary between an ‘easing cycle’ and ‘mid-cycle correction’. It’s likely the Fed will need to make some fresh qualifying statements of intent to head off speculation.

Bottom line: A lot of the economic data is of the third-tier variety which doesn’t typically move markets, but it’s still an extremely valuable signal for the direction of broader economic growth. For instance, UK CBI Realised Sales is expected to report the sixth consecutive negative reading, arguably the worst series since 2008. Even though the Pound has traded on Brexit headlines and not fundamentals, this dynamic won’t persist forever. And when the focus comes back to data, Sterling appreciation may be more limited than many market participants would believe.


Sterling volatility fell last Friday with the pair trading between 1.28 – 1.2860 in London hours as the UK awaits the EU’s Brexit extension offer. Today, markets are expecting Parliamentary votes for a general election by year-end which could raise intra-day volatility. GBP/USD has been supported by the 1.28 figure in recent sessions and could continue to keep the pair higher as markets await key Brexit headlines.


The currency cross continues to trade relatively flat due to Dollar strength, causing both components to fall from their October highs. With the Pound likely to contribute more volatility for the pair than the Euro, emerging Brexit headlines will continue to drive GBP/EUR which has been supported by 1.1525 in recent sessions.


On Friday, the pair extended its recent decline to 1.1073 after US Dollar strength weighed. A tight trading range can be expected for EUR/USD which sits between the 50 and 100-daily moving averages of 1.1038 and 1.1132 respectively. A light day of data for Europe and the US is likely to keep volatility low in today’s session.