Sterling remains front and center today as the British Parliament is expected to vote on alternative avenues to the Brexit process. The UK currency remained unfazed yesterday treading water around the 1.32 mark but today should be a different story as its price action will hinge on the outcome of the voting process. The Dollar recovered across the board even though 10-year UST yields remain close to the 2.4% mark and US data missed their marks. The New Zealand Dollar dropped to 0.68 as the RBNZ signaled that their next move on interest rates is “more likely” down. Equities had a positive day notching a 0.5% advance on average, Gold dropped to $1,315 but Oil climbed above $60 again.
The British Pound spent the last 24 hours on a “wait and see” mode as investors were not willing to take an early view on the results of today's votes. The British MPs seized control of the Parliamentary agenda for the first time in 100 years in an attempt to put forward “alternative proposals”, that may include a second referendum or even a revoke of Article 50 altogether. As we mentioned yesterday, clearly the most bullish case would include another referendum or cancelling Brexit but given that the Commons is deeply divided between Remainers and Brexiteers, the most likely outcome appears to be another dead end.
Barring a surprise today, the path of least resistance for Sterling points lower and the 1.3150 support may be put under pressure: a potential break lower would expose the 1.31 level and further selling action could take prices all the way to 1.30. In the medium term, if today's process results into nothing the clock will continue winding down for Theresa May and her government to make a choice: ask for a longer delay, potentially for a year, leave with no deal in place or even resign and call for elections. In any case, volatility should be in the menu over the next few days so be prepared for another chapter in the Brexit saga.
Meanwhile, the Dollar picked up some mild demand during yesterday's session that helped it recover against the Euro, the Yen and the commodity dollars. However, the release of fresh data from the US doesn't justify this recovery: housing starts, building permits and consumer confidence all printed lower than expected so we have our doubts on whether the greenback can extend its short-term gains. Dollar/Yen hovers around 110.50 but more selling pressure should appear around the 111 area, which may push prices towards 109.60 again.
The Euro was among the victims of Dollar's recovery with prices dropping to 1.1250 after spending Monday's session above the 1.13 area. We make a special mention to the shared currency today to highlight that, even though we don't expect the Dollar's recovery to last long, the Euro may see more losses due to its own bearish outlook. Mario Draghi will be speaking publicly in Frankfurt today and if he makes any references to ECB's plans to begin easing again - given the anemic performance of the Euro area - the Euro will see a deeper decline towards and below 1.12.
Gold saw a decline yesterday as the Dollar was moving higher and the $1,315 level was tested. The yellow metal is now hovering just above this area of support and depending on the greenback's price action we may see a deeper correction or another push higher. Given the bearish data coming from the US and UST yields moving close to the 2.4% level again we see more chances of another move to the upside for Gold: $1,325 is the near-term target and a break higher will expose the $1,330 level. Oil on the other hand rallied to $60.50 as Russia committed to continued production cuts and the question now becomes whether prices can break into higher ground, with the $62 mark being the next area of interest.
The stock markets were in the green across the globe with the EuroStoxx 50 closing 0.58% higher while the US indices added a bit more than that on average. The calls for a fresh round of quantitative easing funded by the major central banks are spreading enthusiasm among equity traders and, if Draghi makes a reference to it today, more gains may be seen. Equity futures on both sides of the Atlantic are pointing higher this morning so the risk-on mode should remain in place.
MARKET EVENTS TO WATCH
- ECB President Mario Draghi Speaks in Frankfurt - 12pm
- US Trade Balance - 4.30pm
- DOE U.S. Crude Oil Inventories - 6.30pm
All times are GMT +4.