Thursday, February 21, 2019

Pound remains unfazed as May gets nothing from Juncker, Euro comes front and center

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

Theresa May comes out empty handed from her meeting with Jean-Claude Juncker as no significant progress was made in terms of securing a reworked agreement that she can present to her Parliament. The two sides vowed to keep working together in order to arrive to a solution but the British PM is facing further problems back home as more lawmakers from her party decided to resign. The Dollar was steady throughout the day as the release of the FOMC January minutes didn't reveal anything unexpected barring a coordinated focus on “remaining patient” and allowing data to show the way forward. Gold comes off its highs but Oil pushes through towards $58.

The Pound tested the 1.31 mark yesterday amid a broader bearish bias surrounding the Dollar even though May's meeting with the European side didn't produce anything new. The British currency did pull back afterwards towards 1.30 on the back of the lack of progress but the currency's resilience is indeed impressive. But why does the Pound remain at those high levels given the absence of any positive developments on the Brexit front? It seems that market participants are pricing in a delay of the Brexit deadline as the opposite scenario would mean a no-deal exit and the chaos it would ensue.

So where do we go from here? Given the absence of any pending data from the UK this week, Cable's price action will depend on domestic developments in regards to May keeping control of her party and Dollar's direction. The Dollar is seeing some demand after the FOMC minutes didn't reveal anything too bearish but the main threat for the Pound comes from the risk of more UK lawmakers resigning or voting down May's proposals. As such, the path of least resistance points downwards and we're expecting a test of the 1.3020 support and if that gets breached, then the next area of interest can be found around the 1.2960-80 area.

The Euro will be front and center today ahead of the release of the PMI figures from Germany, France and the Eurozone. The data is expected to print along last month's levels which means that the downbeat tone around Europe's growth and performance will remain in place. The currency pair saw a timid reaction to the FOMC minutes' release last night and even though it traded towards 1.1380 if lacked follow-through. Given the lack of any bullish catalysts in play we expect the shared currency to extend its consolidation between 1.1330 and 1.1370 and in case of a break to the downside, we identify 1.13 as the next support level.

Gold came off its highs yesterday and is currently trading just below the $1,340 level as the positive mood coming out of the Sino-US talks offsets Dollar's bearish short-term bias. Given that investors don't seem willing to continue selling the greenback for the time being, we would expect the yellow metal to struggle to trend higher in the near term. As such, a mild retreat towards $1,332 may be seen over the next 24 hours. Oil powers through the $56 resistance and continues towards our $58 target; we see no reason why to alter our view right now so we remain optimistic over more gains for the commodity.

Equities had a positive day yesterday and this morning the equity futures in Europe and the US are pointing towards a bullish opening bell. Optimism around the trade talks between the US and China remains the main catalyst here so we expect more gains in the short term. Fed's decision to remain patient in regards to interest rates' policy is yet another bullish driver helping equities extend their rally to the upside.

MARKET EVENTS TO WATCH

  • Eurozone Manufacturing PMI - 1pm
  • Eurozone Services PMI - 1pm
  • ECB Accounts of the Governing Council's January Meeting - 4.30pm
  • US Durable Goods Orders - 5.30pm
  • US Services PMI - 6.45pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research

 
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