Market Drivers November 27, 2018
Bears push cable towards key 1.2700 support
Dollar Stays bid ahead of G-20
Nikkei 0.64% Dax 0.03%
Europe and Asia:
Cable was under assault once again in Asian and early European trade today with shorts breaking the 1.2800 barriers as Brexit pressures continued to weigh on the unit.
It’s becoming increasingly clear that barring a 2nd referendum, UK will face the unpalatable choice of accepting PM May’s deal or suffer the consequences of a hard Brexit. With most of the legal advisors noting that UK cannot escape the Irish backstop rule if it wants to remain in customs union, PM May is now facing the unenviable task of getting Parliament to approve her deal which essentially binds UK to most of EU trade rules without giving the country any representation in the EU Parliament.
As we’ve been noting for a while, the 1.2700 figure is a key support in the pair and seems the represent the Maginot between the hope of some workable compromise and the threat of a hard Brexit. For now the market continues to hold above that level as the consensus view is that some sort of a soft exit will be worked out, but with UK Parliament appearing ready to vote down the deal and with no credible alternatives left, the prospect of a hard Brexit has become uncomfortably real as the deadline looms.
Meanwhile, the dollar remained bid as hopes ran high that Presidents Trump and Xi could work out some sort of a trade deal at the G-20 meeting later this week. USDJPY and other risk assets popped on headlines from Chinese press that Trump and Xi agreed to mutually beneficial agreements – but that was apparently a reference to their November 1 call rather than any new policy initiatives and the move was quickly reversed. Still, the pair remains well bid as the market expectation is that Mr. Trump is eager to forge some sort of a deal, both for political gain and because his scorched earth trade policy has put the stock market into negative territory which Trump takes personally.
With no economic data on the calendar today, North American trade will likely be driven by headlines once again. With EURUSD and GBPUSD tantalizingly close to their respective support levels of 1.1300 and 1.2700 the bears may gear up for one last push to clear the stops as the dollar rally continues.