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Why I’m Not Living on My Own Island

Why I’m Not Living On My Own Island

This is why £2 a week on a footie accumulator is quite enough excitement for me.

should I have been inclined to have a flutter on a sterling position last week, then a triple-digit defeat for May’s Brexit bill having negative implications for the pound would have seemed a wise wager.

So what happens? May gets hammered by 230, the EU power players are unanimous in their regret at the result and worry that it brings a ‘no deal’, the currency dips(low of 1.1127 & 1.267 EUR & USD respectively)…and then low and behold traders decided to be sterling positive! We even reached the dizzying heights of 1.14/1.30 vs. euro/dollar for the first time since early November, although have settled down since those Thursday highs.

It appears the scale of the defeat has left traders buoyed to believe there is strong and increasing support to avoid a ‘no deal’ at all costs (pun intended). I myself don’t presume to know the split between the Tories who rebelled against May because they never wanted Brexit in the first place, and those who remain vehemently opposed to the proposed compromises and would still prefer no deal at all. See: easy when it’s not your money.

May clearly believes she can’t take this threat off the table as it would leave the UK holding no cards (we currently have a pair of sevens) in her pursuit of EU compromises…whilst Corbyn simply won’t attend the table until that very possibility is removed

A further move up will depend on plausible amendments to the bill so comprehensively defeated. This will be debated today (Monday 21st from 15:30) and voted on next Tuesday 29th.

My own view is that traders double-guessed themselves, took some technical-level profit; and with no resolution to the Irish Backstop question, an extension to transition period (past March 2019) will be most likely. And so it goes on.

GBP/EUR

1 week: 1.1190-1.1390 ranges. Any removal of ‘no deal’ from the table, and 1.1435

6 months: 1.18

12 months: 1.21

GBP/USD

1 week: 1.1.2725-1.29 ranges. Ditto 1.31

6 months: 1.35

12 months: 1.1.39

For the Eurozone, the single currency lost ground against both GBP and USD last week.

Bullish bets on both GBP and USD to varying degrees appears the prominent driving force,  rather than anything too damaging to the core of the Continent.

In Germany ZEW Consumer Sentiment on Tuesday is expected to continue its year-long negative outlook and on Friday there isn’t much hope that the Ifo Business Climate improves from lows last seen in 2012.

Thursday sees the French, German and Eurozone-wide Manufacturing and Services PMI (Purchasing Managers Index); a gauge of future confidence in those key sectors. Said confidence has been dropping across the board in recent months, with concerns over Brexit, China (both export markets) and a general global slow-down all concerning. I don’t expect a bullish ECB monthly statement on Thursday and thus expect a week once again in which the euro drops modestly against its main trading pairs. Which almost certainly means traders will take profit and it’ll be back up a cent vs USD by Friday!

EUR/USD

6 months: 1.17

12 months: 1.21

Same old same old, as there remains political Groundhog Day in the USofA and Stagnation in Japan.

The Fed is reluctant to raise interest rates, Donald Trump loves a ‘war’ (clearly an avid reader of Orwell) and Chinese Trade War continues bubbling away in etc. This week is extremely light on data and there is a bank holiday Stateside on Monday.

The consensus of traders as we begin the week appears to be dollar bullish, perhaps as a safe-haven approach to the exact uncertainty The White House’s foreign trade policies have created. The Euro is taking a hit.

For JPY, last Thursday we heard from The Bank of Japan Governor Haruhiko Kuroda that the central bank has been happy to use ‘unconventional’ tools to stimulate an economy suffering from years of stagflation.  Their monthly policy report is Wednesday.

So, loose policy and possibly more QE to be Yen negative?

In these times of trade wars, Brexit and global economic slowdowns, the Yen remains a currency the cautious are happy to sit in, regardless of a lack of returns.

My view is the tone to remain cautious but for the Central Bank to leave open the door for even looser policy if needs be.

I remain medium and long term Sell on USD/JPY but think the BoJ will help dollar bulls this week.

USD/JPY

Weekly: 110

6 months: 108

12 months: 107.50

For the commodity currencies, New Zealand’s inflation is expected to be flat q/q. The chances of any loosening or tightening of kiwi remains remote, but against the Aussie this lack of a positive could certainly be NZD negative. Canadian monthly Manufacturing and Retail Sales will likely continue to suffer, whilst Thursday’s Aussie unemployment is expected to remain around 5% and thus the lowest in over 6 years. When considered against the backdrop of China seeing its slowest economic growth for 28 years, the concerns for all three currencies are legitimate. The hope of Japanese and Chinese banks to go QE crazy is very real.

GBP/AUD

Weekly: 1.7825-1.805. No to ‘No Deal’: 1.83

6 months: 1.83

12 months: 1.86

USD/CAD

6 months: 1.29

12 months: 1.34

AUD/NZD

6 months: 1.08

12 months: 1.10+

James Bhattacherjee

I’ve been working in financial markets for over a decade.

My area of interest has always been currency, where I’ve done everything from cold calling salesman to being a senior dealer at the UK’s biggest broker.

I am currently Manager of new Affiliates at a London-based specialist.

Having worked in publishing in a previous life, I’ve enjoyed the opportunity to combine my experience and writing skills with self-taught market insights; mixing rate predictions with the appropriate placing of a semicolon.

Our Brexit debacle has also indulged my love of dark comedy. The Thick Of It meets Brass Eye is the looking glass reality we are now staring through.