Cable Soars on No-Hard-Brexit Relief

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Market Drivers February 26, 2019
Cable soars on no-hard-Brexit relief
All eyes on Powell in NY session
Nikkei -0.37% Dax -0.17%
Oil $55/bbl
Gold $13286oz.

Europe and Asia:
No data

North America:
USD Housing Starts/Permits 8:30
USD Powell Congress Testimony 10:00

Cable was the star of the show in overnight trade tonight as the pair finally broke through the 1.3200 resistance line on renewed market confidence that a hard-Brexit exit from the EU was not going to happen.

Two events yesterday helped fuel the rally. One was the formal call by Labor party leader Jeremy Corbyn for a 2nd Brexit referendum and the other were reports that PM May would consider extending the deadline if her Brexit negotiated deal could not pass Parliament.

In both cases, the Labor and Tory leaders were clearly reacting to the revolt within their respective parties against a seeming slow roll toward an economic edge cliff. The events of the past 24 hours appear to have put a hard break on the possibility of a very messy and disruptive non-negotiated exit of UK from EU. The market has long held that bias with cable remaining bid over the past few months despite repetitive failures to reach a deal and today’s event appear to have validated those views.

Having now priced in the prospect of no hard Brexit cable may consolidate at these levels as the political wrangling continues, but barring some unforeseen scenarios today action suggests that a non-negotiated exit will not occur.

In North America today the focus will be on Fed chair Jerome Powell who will provide his semi-annual testimony in front of Congress. The key focus of the market will be on whether Mr. Powell will deviate from his dovish stance. This appears unlikely as the history of Fed policy changes suggests that it will stick to an easing course to engineer a soft landing of the economy before resuming normalization. Although economic activity has picked up post the chaos of US government shutdown, it is still too early to tell if it has hit trend growth. The prudent choice would be for Powell to maintain his easing rhetoric. However, the danger lies in the fact that Fed may want to assert its “independence” and if Chair Powell indicates that rate hikes will resume in the second half of the year the rally in risk assets that we have seen over the past month could come to a screeching halt.

Boris Schlossberg
Managing Director

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