Good morning,
As we drift out of the wake of last week’s ECB decision and head on in towards the likely larger wave of the Federal Reserve, there are a few things to take stock on heading into the week.
The state of affairs over in the US has changed a lot in the last few weeks, with US/China developments settling to a light simmer now as delays in tariffs and negotiations allow markets to find some stability in the stormy waters and move money to riskier assets.
Having said that, as markets open this morning, we have seen a 10% jump in the oil price following an attack leaving the Saudi oil stocks halved. The effect on currency? Bringing global unrest back into the picture, with haven currencies – namely the Japanese Yen – primed to see some action throughout the week. The Norwegian Krone and the Canadian Dollar have seen large buying volumes as oil-producing economies provide shelter.
The key risk event this week is the Federal Reserve rate decision and accompanying forward guidance. A cut of 25 basis points is mostly priced in with anticipation of a further quarter cut in December. Deviance here or hawkish dressing up of the US economy will likely shock the US dollar. As we have seen from last week’s ECB decision, even when things go as expected, the rates can move massively.
GBPUSD opens at 1.2460 with 1.25 comfortably in the sights this week.
On the Brexit radar, the week starts on a positive spin as discussions over the weekend around an extended transition period beyond 2020 are likely to prop up the pound with businesses seeing this positively. Boris Johnson will meet with the EU Commission President Juncker to continue negotiations. He continues to go in with a firm stance and the intention to reject any delay offer.
The pound will be at the mercy of any unexpected developments here. An increase of 4% in the last ten days has shown the pound’s favour for a deal outcome and so will be very reactive to the sentiment that develops this week.
Have a great week ahead.