Morning Report: 26 November 2018

November 26, 2018

GBP. Sterling remains stuck at an amber light, waiting for the signal to go forward and rally, but it may be a few weeks before the clear green light is shown. Theresa May managed to get the EU27 to sign off on the draft political declaration in around 30 minutes on Sunday, but sterling shows little signs of life as the new week kicked off in Asian hours. The arduous 2-week battle for May now begins, as she attempts to appease both sides and solidify the 50% majority needed to squeeze the draft Brexit deal through Parliament and into the UK lawbooks. May is expected to make a statement in the Commons today at 15:30 GMT covering yesterday’s developments with the EU. The threat of Parliament rejecting the proposed deal has held sterling’s progress up, and poses a major threat to its near-future direction should the deal be shot down in Parliament. GBPUSD is likely to remain static this week, as investors remain dubious and averse to being caught on the wrong side of the pound’s next big move. Dollar moves are likely to dominate its short-term volatility.

EUR. Purchasing Manager Index scores that disappointed on Friday – not for the first time this year – set the tone for a dreary trading day for the euro on which the single currency eventually lost against most major currencies. However, some positive tones were churned out by the Italian political scene over the weekend, as Prime Minister Giuseppe Conte said he is “confident” Italy can avoid unprecedented European Sanctions against the country over the budget. Deputy Prime Minister Matteo Salvini then added to the upbeat sentiment by showing some openness to changing the deficit on the Italian budget, as long as it still supported growth. Today we keep our focus with another Italian as European Central Bank President Mario Draghi testifies for the European Parliament at 14:00 GMT. A week and a half ago he confessed ECB confidence in medium-term inflation expectations is decreasing, which is why ECB watchers will be focused on more hints of a dovish shift, possibly extending the Asset Purchasing Program. Draghi speaks again on Thursday, with Flash Consumer Price Index data on Friday being this week’s main data release.

USD. This week proves a busy one for the dollar with a loaded data calendar and geopolitical meetings set to take place. The G20 summit that begins on Friday may start to see the easing of US-Sino relations, however, many expect this to occur on the sidelines and out of sight from the cameras. Meanwhile, a plethora of data is released. The most notable are the releases of GDP on Wednesday, PCE inflation index on Thursday and FOMC meeting minutes Thursday evening. FOMC meeting minutes are questionably the most important release for the dollar this week as market reservations still persist on whether the Fed is in the right position to continue tightening at the same pace next year.

CAD. The loonie fell over half a percentage point last week against the dollar as crude oil prices continued to get pummelled lower. However, the loonie seems to have found a gripping and has started this week on the front foot, almost reversing all of its Friday losses this morning as oil prices regain some ground. The data calendar remains sparse until Friday for the Canadian economy where GDP figures for September are released. Movements in the oil market will continue to dominate USDCAD this week ahead of OPEC’s meeting on the 6th of December.

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