02 December 2019: Pound lower as YouGov exuberance fades

02 December 2019: Pound lower as YouGov exuberance fades

Pound lower as YouGov exuberance fades

02nd December: Highlights

  • Just show me the facts!
  • Data set to underpin economic performance
  • Is the Eurozone economy bottoming out?

Many a slip between cup and lip

Considering recent election results just how solid is the most recent opinion poll on the election?

It’s clear that the market retains a degree of scepticism as news of a forecast 60+ seat majority for the Brexit favouring Conservative Party failed to drive the pound higher.

In fact, the market’s scepticism was cemented on Friday when, in thin post-Thanksgiving markets, the pound failed to capitalize on recent gains.

There is solid resistance around the 1.30 level versus the dollar although the market remains determined to buy dips even though there are very few new long positions being created.

It reached 1.2952 last week as a degree of positivity that Brexit would be completed, and businesses can return to investing in expansion pervaded the market.

While traders remain optimistic that the result of the election in less than two weeks’ time will be conclusive, the concern remains that should the Conservatives fail to find a majority, they will be unable to form a coalition and that may allow Labour, whose policies spell both further Brexit confusion and greater economic uncertainty, to form a coalition with the Scottish nationalists.

With further televised debates this week, politics will continue to be the main driver for the currency market. However, traders will be interested to see how manufacturing output, the data for which will be released today, has reacted to the prospect of the election and perhaps an end to uncertainty. Services data will be released later in the week and overall activity is likely to point to continued but lower and slower growth until the second quarter at least.

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One more FOMC this year is expected to “steady the ship”

With data since the Fed decided to put any further rate cuts on hold being generally positive, the last FOMC meeting of the year, while still significant, will most probably be disregarded by the market unless there is a major shock.

It is possible that Jerome Powell could be more positive than in recent times as his confidence and popularity are both growing as the uncertainty that surrounded his relationship with President Trump fades.

This week will be heavily data driven with both services and manufacturing data due for release as well as the all-important employment report.

Manufacturing output is predicted to have risen from 49.3 to 49.4 according to ISM while the markit data is a little more optimistic expected to rise from 52.3 to 52.5

The November NFP data is still expected to see a significant rise over October. The employment report is considered the most important monthly bellwether for the economy providing an “instant glimpse” despite the unnecessary haste to provide the data meaning that several estimates which lead to revisions being included.

Estimates put the headline job gains at anything up the +200k but analysts expect closer to +180+

That is still a significant increase over the +128k seen in October, although that number could be the subject of an upwards revision.

Such is the degree of positivity surrounding the economy that the dollar index could return to higher levels should the data provide solid evidence of higher Q4 growth.

Last week, the dollar index was restrained by the holiday, trading between 98.54 and 98.17. It closed at 98.28, just one pip higher on the week overall.

Can the data have hit the bottom

Economic data releases this week in the Eurozone could prove to be even more significant than in the United States. As a curtain raiser to how Christine Lagarde will perform at her first ECB meeting next week, she could be handed a degree of positivity not seen in Eurozone data in a very long time.

Manufacturing output is expected to remain unchanged at 46.6 while the same data for Germany is expected to rise (from a low base) from 43.8 to 44. While these are baby steps, the data provides further encouragement, albeit tepid, that the economy may have found its lowest point.

Ursula von der Leyen, the new President of the EU Commission finally took up her position a month late, hampered by “administrative issues”, yesterday.

She gave an impassioned speech in German French and English in which she concentrated on the environment and pledged zero emissions by 2050. While the major issues facing the Eurozone, a prediction concerning the environment further into the future that the Eurozone has existed is unlikely to inspire too many observers.

Von der Leyen is expected to be more inclusive and less obstructive to change than her predecessor and is expected to interact more closely with the administrative divisions of the EU, the ECB in particular.

Christine Lagarde will make a further speech today in which she is not expected to outline plans with any definition but may allude to the direction in which she expects to take the Central Bank. As she prepares for her maiden ECB meeting next week, she may feel it is a good time to publish bad news as the meeting is likely to be overshadowed by the FOMC meeting and the UK election.

Last week the single currency remained reactive without any positivity to drive it forward. It closed at 1.1016, barely changed on the week.

Have a great day!
About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”