A big day ahead for the British Pound as the Parliament is about to vote on a series of amendments to Theresa May's Brexit plan that may reshape the way forward. Sterling saw a mild decline over the past 24 hours trading to 1.3150 ahead of the important vote that starts at 7pm GMT tonight. The Dollar was unchanged on average with the currency seeing losses versus the Euro and the Yen but gaining against the Australian and New Zealand dollars. Gold retests Friday's $1,305 highs while Oil retreated to $52 per barrel.
Investors will want to focus their attention on the Pound today as the vote taking place in the Commons may alter the way forward in regards to the Brexit process. There's a series of amendments put to vote but the most important ones have to do with removing a no-deal exit as an option, delaying the Article 50 deadline and potentially transferring control of the Brexit talks to the Parliament. Should these changes get the nod from the British MPs then the path that lies ahead changes significantly and the Pound has a lot to gain today.
Political analysts expect that the proposed removal of a no-deal scenario has the most chances to pass while a delay of Article 50 and a transfer of the Brexit talks to the Parliament also stands a good chance to get approved. It's easy to understand that if these predictions come true, they will be a crucial step forward for the Brexit process - and a clear bullish catalyst for the Pound. Obviously, the delay of Britain's exit from the EU would prolong the uncertainty surrounding its outlook but the removal of the potentially catastrophic no-deal exit should be enough for the Pound to rally. Should this be the case, the next area of interest for Sterling lies around the 1.33 mark - a good 1.1% higher from current levels.
Shifting our attention to the Dollar, the US currency spend the past 24 hours relatively unchanged versus its peers. However, now that the US Government reopened we expect a host of fresh US data and the odds are not in favor of a bullish showing. The US Consumer Confidence report pending for release today is expected to print softer but the real focus lies with the Fed interest rate decision and press conference tomorrow.
A report from Citigroup indicated that institutional investors have now reduced their Dollar longs to a 10-month low and this would mean two things: one, that the market is already going on the defensive on the greenback so a bearish FOMC event might have little effect in the short term - it may even provide a temporary bounce higher - but second, the medium-term outlook of the currency seems to become dimmer as time goes by, pointing to more losses in the weeks ahead. Dollar/Yen is hovering just above the 109.20 support but a break lower would expose the 108.70 and 107.80 levels.
Gold saw little action yesterday after Friday's gains that shot prices above the $1,300 psychological barrier. Dollar's expected weakness on the back of softer US data and ongoing - and seemingly never ending - trade tensions between the US and China are supporting demand for the yellow metal. Now that the US government reopened and as soon as we get fresh US data we should see further Dollar weakness, which points towards more gains for Gold with the $1,312 area as the next target. Oil on the other hand had a setback yesterday and retreated below $52 for a brief time; a series of lower highs and lower lows suggests that we may see further downside in the short term but as long as prices hold above the $50 level we remain optimistic over Oil's medium-term outlook.
Global equities started the week on a bearish note yesterday as the lack of progress in the US-China trade talks and the potential extradition of Huawei's CFO from Canada to the US on criminal charges highlight a complex geopolitical landscape. At the same time, rumors that President Trump will not hesitate shutting down the US government again in February as he tries to get funding for his wall with Mexico create further challenges for the US economy, keeping equity traders on the sidelines. As such, the US markets are predicted to open slightly lower today while the optimistic Brexit outlook helps Europe kick off the day above water.
MARKET EVENTS TO WATCH
- ECB's Villeroy speaks in Paris - 2.20pm
- US Consumer Confidence – 7pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research