Key Points From This Week
The standout winner among G10 currencies this week has been the Canadian Dollar with only itself and the Swiss Franc having risen against USD. Higher oil prices have helped boost CAD which is also supported by improved risk appetite around US-Sino trade negotiations. GBP has been the weakest performer this week as uncertainty around Brexit has seen the recent rally pausing for now.
Brexit Delayed Again
While many I’m sure were hoping that Brexit was going to be brought to a conclusion this month, the story is not over yet. On the back of two parliamentary defeats this week, Boris Johnson failed to get his Brexit deal passed. Pursuant to recently passed legislation, the UK PM has now requested that the EU grant a further extension to Article 50 of three months. The EU has not yet returned a decision though commentary around the process suggests that the request will be approved, seeing Brexit delayed once again. This is good news for GBP in the medium-term as the UK avoids a cliff-edge no-deal Brexit though does mean that the uncertainty will continue a while longer.
US / Sino Trade Deal Still In Sight
US & Chinese officials held further talks this week over the telephone on Monday and are meeting today for another round of face-to-face talks. Given the continued momentum in negotiations, traders remain optimistic that the two sides will press on and sign the “phase one” trade deal in November at the APEC meeting in Chile which is trump’s current aim
Mario Draghi’s last ECB Meeting
This week also saw the final meeting for Mario Draghi as head of the ECB. The bank kept policy unchanged as expected though signalled that further easing could still take place. The policy statement noted that “The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics”.
Key Events Next Week
FOMC Rate Decision
With US data having weakened dramatically since the last meeting, the market is now widely expecting the Fed to cut rates by a further 25 basis points. A range of key indicators have highlighted severe weakness, making the case for a further cut which current market pricing suggests is viewed as a near certainty.
BOC Rate Decision
The BOC is also seen as highly likely to cut rates further when it meets next week. Given the deterioration in global trade conditions as well as ongoing weakness in oil prices, the market is now looking for a further 25 basis point reduction at the coming meeting.
BOJ Rate Decision
The expectations around the upcoming BOJ meeting are a little more mixed. Bloomberg is reporting that despite the global slowdown, the BOJ does not feel that the domestic economy has been impacted to the point where it needs to ease further. Instead, the bank will look to use forward guidance to put pressure on JPY. However, there are clear downside risks into the meeting which JPY traders should be aware of.
Keep An Eye On
EU’s Brexit Decision
The highest likelihood outcome is that the EU will extend the Article 50 deadline, however, it might not agree to the three-month window requested by the UK and could offer only a shorter or longer-term extension. A shorter-term extension would likely be bearish for GBP, elevating uncertainty while a longer-term extension could increase the perception that Brexit will ultimately be avoided, keeping GBP supported.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% and 71% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!