Good afternoon,
The week ahead in GBP
Here we go again! Brexit is back on the voting docket in the House of Commons and will be almost the only thing we talk about for months to come. Theresa May’s deal is set to be voted on by the House of Commons tomorrow and while there is a slim possibility that the deal passes the House, the greater likelihood is that it doesn’t.
If, as expected, the deal is voted down then GBP traders will be watching three things; the margin of defeat, how opposition parties react and what European politicians say after the fact. A heavy defeat raises the possibility of a confidence vote in the May government and starting the path towards a general election.
The consensus expectation within markets is that Article 50 is eventually extended, delaying Britain’s exit from the European Union until after March 29th. If the May government doesn’t mention such provisions in any post-vote communications then GBP could be in for a tough few weeks. The upside for GBP will be found should the vote pass or the noises around the prospects of a second referendum become more official than a couple of front-page newspaper stories.
The week ahead in USD
Last week the Federal Reserve showed just how cautious it has become since the turn of the year week with almost all members of the Federal Open Markets Committee to speak openly on the subject noting that the circumstances of both the US and global economies have shifted since the last few months of 2018.
We are glad to have seen that market expectations of how many interest hikes the Federal Reserve will make this year are now more in keeping with our original thoughts of two and that our calls for a weaker dollar are also proving correct.
Moving ahead, there is a balancing act to be struck for the dollar between weak US data and weak global data. News out of the US isn’t terrible at the moment but a weakening picture alongside the government shutdown is causing the poorer dollar. However, poor economic news from the wider world will see the dollar maintain its haven status and be bought up by investors.
The data calendar is affected heavily by the government shutdown but Tuesday’s inflation data will be watched for further signs of slowing price pressures.
The week ahead in EUR
We are starting to get to the part of Brexit wherein lies risks to the euro as well as the pound. Tuesday’s parliamentary vote can go one of two ways and. while the main winner or loser from the decision will be sterling, we will be watching the euro versus the dollar, yen and Swiss franc. A successful vote is enough to put the EURUSD back above the 1.15 level with a vote against and wider political fears enough to take a couple of per cent out of the currency.
Elsewhere, the economic data has also not been entirely supportive with some commentators raising the prospects of a recession in Germany and France in the coming quarters. If this week’s inflation numbers are weak as well then the single currency will not just be worrying about Brexit.
The week ahead in CNY
This week has already started poorly for the yuan as the impact of poor trade data started to bite. Chinese trade was knocked lower in December with both exports and imports falling. Exports from a trade-focused economy naturally have linkages with industrial production, employment, inflation and GDP and hence the concerns over the wider economic picture both in China and in wider emerging markets.
We have seen some warm words from both Chinese and US trade negotiators in the past week and investors and yuan holders will be hoping that those warm words turn into something more concrete in the coming weeks.
The week ahead in JPY
USDJPY remains range bound and will continue to trade on the wider fears and concerns around the global economy this week. As a haven, JPY will pick up some ground on fears around Brexit, the government shutdown in the United States and Chinese growth dynamics.
The week ahead in AUD
The data calendar is quiet in Australia this week and AUD holders will be hoping that the wider support the currency has received from the weaker dollar and a rebound in equity markets… There is no reason to suggest that AUDUSD couldn’t break 0.72 this week.
The week ahead in SGD
There is also minimal data from Singapore this week although the poor news from China won’t have helped matters in the short term. We expect SGD to remain around the 1.35 level this week against the US dollar.
Have a great week.