Dollar Holds Bid as Cable Holds it Breath

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Market Drivers November 9, 2018
UK Data Dump generally in line
Dollar holds bid post FOMC
Nikkei -1.05% Dax -0.54%
Oil $60/bbl
Gold $1221/oz.
Bitcoin $6500

Europe and Asia:
GBP UK Trade Balance -9.73B vs. 11.25B
GBP UK MP 0.5% vs. 0.4%
GBP UK GDP 0.6% vs. 0.6%

North America:
USD PPI 8:30
USD U of M 10:00

It’s been a very quiet night of trade in the FX market with dollar remaining bid in the wake of unambiguously hawkish Fed statement while Europeans continued to quarrel over Italy’s finances and UK data came in basically in line.

The biggest data dump came out of the UK which released a slew of reports including Trade, GDP and Manufacturing. Both trade and manufacturing data beat slightly while GDP printed in line with consensus at 0.6% on a q/q basis. The monthly figure was slightly weaker at 0.0% versus 0.1% eyed, but overall there were no surprises in the data and the market quickly ignored the news.

The price action in cable remains dominated by Brexit headlines as the Irish border issue continues to be the single biggest stumbling block to the deal. The hardliners within PM May’s coalition continue to resist any open border in Northern Ireland but the market is betting that this intransigence will give way as the costs of an unruly hard Brexit could be cataclysmic. For now the pair continues to hold ground at the 1.3000 level as tensions mount for some sort of progress on the deal.

Elsewhere, price action was similarly muted with EURUSD continuing to drift lower towards the 1.1300 figure amidst unrepentantly hawkish Fed and more squabbling with Italy. Yesterday’s FOMC meeting reaffirmed that Fed is going to continue with its one rate hike per quarter pace for the foreseeable future putting upward pressure on US short-term rates which in turn should keep the dollar bid. Meanwhile, the conflict between Italy and EU will likely come to a head as neither party is willing to compromise on budget rules. That could put fresh downward pressure on the euro with the pair looking once again to retest the recent swing lows at 1.1300 level. The pair has held support at that figure twice, but third time could prove to be the charm for the shorts and if given could open the way for a move towards 1.1100 as the divergence between ECB and the Fed widens.

Boris Schlossberg
Managing Director

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