It’s become quite a trading week for the foreign exchange markets with US President Donald Trump having a go at high oil prices, and British Prime Minister Theresa May promising a parliamentary vote on a no deal Brexit.
The effect is unquestionably apparent, according to Kit Juckes, Head of FX at Société Générale. “President Trump expressed displeasure at the (higher) price of oil and the market duly humoured him by taking Brent prices back down to $64.70 per barrel. The foreign exchange market reacted by taking the NOK, RUB and CAD into the bottom five over the overnight league table."
“Yet, there's not much to ‘analyse' in this kind of market reaction, but on the supposition that oil prices are settling into a broad range whose centre of gravity is above the current price, I still think EUR/NOK and USD/CAD will be somewhat lower than this by mid-year.”
The market gyrating to Trump tweets and one-lines is bad enough, but the other big ‘story' is Brexit - again. UK’s PM May offered a concession to her Conservative remainders that they can take a ‘no deal' exit from the EU off the table if the PMs propose deal can't get the support of Parliament on 12 March.
“This is, of course, a ploy to drag Hard Brexiteers towards her position, but sterling's gained all the same. I still think the best guess of GBP/USD for this time next year ‘if’ the UK avoids a no-deal exit is around USD/GBP 1.40, whereas a no-deal exit itself takes it to 1.20 (and temporarily lower).”
The SocGen expert also said a second referendum would see GBP/USD get to 1.50 but that's still very, very unlikely.
With all that going on, EUR/USD remains range-locked, Bunds remain grounded, and news remain thin on the ground.
“Nothing to focus on in Europe, but the US sees the first round of Federal Reserve Chairman Jerome Powell's semi-annual testimony, starting with the US Senate Banking Committee. Housing starts, permits and prices, as well as Conference board Consumer Confidence data, are all due. The recent trend has been for US data to under-perform expectations and that seems likely to continue and the Citi ESI as given back all of January's bounce,” Juckes concluded.
Disclosure:
I have no positions in any of the securities referenced in the contribution
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To the best of my knowledge, the views expressed in this contribution comply with UK law
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This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.
Gaurav S.
