FX – Going Nowhere; Junker and May to Meet

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Market Drivers October 17, 2018
Pound weighed by Brexit and CPI
EU CPI in line
Nikkei 1.29% Dax -0.36%
Oil $71/bbl
Gold $1226/oz.
Bitcoin $6730

Europe and Asia:
GBP UK CPI 2.4% vs. 2.8%
EUR CPI 0.5% vs. 0.5%

North America:
USD Housing Starts/Permits 8:30

It’s been a very choppy night of trade with EURUSD and USDJPY trading in narrow 20 point ranges while cable slipped below 1.3150 level hampered by continued stalemate on Brexit and softer inflation readings.

The Brexit saga remained interminable with negotiators now having abandoned plans for any sort of an outline for a deal at today’s EU Summit the hope is to have some agreement by November or December meeting. Meanwhile, UK inflation printed much cooler than expected at 2.4% vs. 2.8% dampening any need for BOE action in the immediate future.

The details showed that food and non-alcoholic beverages declined but there’s also notable drop in transport, recreation and clothing prices. The data will likely rule out any possibility of two rate hikes this year by the BoE which will keep cable capped for now, but the focus as always will remain on Brexit talks. Junker is expected to meet with PM May today at 16:30 in Brussels so more headlines may be due.

In Europe, the inflation data came in as expected and the standoff with Italy continued as. Stefano Buffagni the undersecretary for the regions noted that the country must be prepared for a possible downgrade. Italy’s rating which sits just two notches above junk is due to be reviewed this month with S&P coming out with its announcement next Friday. Any further downgrade will weigh on Italian assets and euro as well and could be the focus of trade next week.

For now, however, trade remains choppy but calm as traders await the open of US markets. The eco calendar only carries second tier housing data so equity flows will likely dominate trade as the day proceeds.

Boris Schlossberg
Managing Director

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