In FX – No Place to Hide

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Market Drivers December 10, 2018
EU Reverses anti-dollar flows
UK data misses across the board
Nikkei -2.12% Dax -0.68%
Oil $52/bbl
Gold $1246/oz.

Europe and Asia:
GBP UK Trade -11.8B vs. -10.5B
GBP UK MP -1.0% vs.0.0%
GBP UK IP -0.6% vs. 0.1%

North America:
CAD Building Permits 8:30

A whipsaw session at the start of the week with majors first rallying against the greenback on falling US rates, only to reverse course by London open as dour data from Europe sent cable and euro back towards session lows.

In Europe, the continuing protests in France are beginning to worry investors, as the continents second-largest economy is in danger of seeing a sharp slowdown in activity as a result of the unrest over the past few weeks. What started out as a protest against carbon taxes as morphed into a general protest movement that threatens the political status of Emmanuel Macron who so far has not been able to quell the unrest.

The news is hurting investor sentiment with Sentix dropping to -0.3 from 8.3 expected. That’s bad news for the continent as a whole especially if ECB continues on its path to taper which could exacerbate the contraction in demand by tightening credit at the worst possible time. IMF head Christine Lagarde noted over the weekend that she was certain that the protests would have an economic impact and that view could push EURUSD below the 1.1400 figure as the day proceeds.

Cable in the meantime did its usual seesaw popping on news that ECJ would allow a revocation of Article 50, but the good news did not last as PM May quickly disavowed any desire to do so. Ms. May faces a massive defeat in UK Parliament on her Brexit deal meaningful vote though nothing is certain as markets aren’t even sure if she will put the vote to a test. The consensus view is that a defeat by 100 votes or more will be bearish for cable while a small margin of 20 or less will be bullish as it will put pressure on MPs to ratify the deal in a second vote or face the existential threat of a hard Brexit.

Meanwhile, UK data continues to deteriorate with Trade Balance, Construction Output and Factory production data all missing their estimates as Brexit concerns continue to weigh on UK industry. Pound did not initially react to the news but has since slid to 1.2700 figure ahead of the New York open.

With no major releases in North American open, the choppy price action could continue for rest of the day, but with news is Europe looking bleaker by the moment the pressure on both euro and cable cold build with short pressing to take out last weeks lows of 1.2658 in cable and push euro below 1.1400 once again.

Boris Schlossberg
Managing Director

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