Daily Market Brief 4 July 2018

May plans “Softest Possible” Brexit

July 4th: Highlights

  • Alignment of customs duties unlikely to sway Brussels
  • Minutes to shed light on hawkish FOMC
  • Euro “relief rally unlikely to break strong resistance

Prime Minister to outline “Cabinet Plan C”

Following several warnings from Brussels that time is running out for the UK to secure a favourable Brexit deal, there is a distinct feeling that the Government has caught on and Prime Minister Theresa May has summoned her Cabinet to her official country residence this weekend to outline what will be her third attempt to unite them behind her.

In the past, particularly under Margaret Thatcher’s leadership, a stirring speech and a radical approach were all that was needed to rally a dubious Cabinet, but with her team so divided it would be no surprise to see several resignations following a majority supporting plans for what appears to be an attempt to secure the “softest possible” Brexit.

With the Irish border still the issue which divides Brussels and London the most, many expect a fudged solution that is acceptable to those who remain on her Cabinet but may not assuage the doubts of Messrs Barnier and Juncker.

The most likely to depart following a victory for May’s plans would be Foreign Secretary Boris Johnson, Trade Minister Liam Fox, and Health Minister Jeremy Hunt. These three are the most vociferous of several Cabinet members in favour of “no deal being better than a bad deal”. The realization is finally dawning on the Cabinet, Government, Parliament and the public that the decisions taken over the next few months will affect the country for generations to come.

The pound rallied a little yesterday reaching 1.3208 versus the dollar as the third PMI report following manufacturing and industrial production, grew a little in June bringing relief that the economy is still “bumping along the bottom”.

Considering your next transfer? Log in to compare live quotes today.

Dollar awaits several potential drivers as U.S. celebrates Independence Day

Independence Day is the national holiday which most tends to unite the U.S. behind a set of standards that have existed for most of the country’s 244-year history. The current President, who divides the country like no other is, in public at least, convinced he is leading the country in the right direction. To assert that he is “making America great again” does not make it so and his continual picking of fights with allies and partners belies the fact that the world has moved on from the time when America said jump, the rest of the “free world” would ask “how high?”

Tariffs on thirty-four billion dollars worth of imports from China kick in at the weekend and President Trump is expected to release plans of Friday aimed at protecting Corporate America from the theft of its technology by overseas investors. Both these actions are sure to draw a response from Beijing.

Tomorrow sees the release of the minutes of the latest FOMC meeting. These will be even more closely read than usual by traders trying to find the source of what appeared to be a shift towards a more hawkish bias as rates were hiked and advance guidance of two further hikes this year was given.

In what could be a highly significant couple of days following the country’s return from the celebrations, the week is concluded by the release of the employment report in which wage inflation is now being more closely observed than the headline non-farm payrolls.

The dollar index traded in a narrow range yesterday as positions were squared ahead of the holiday. It reached a low of 94.54, close to the bottom of its recent range and is unlikely to move far today.

Euro relieved over Germany but immigration still a major issue

As a social experiment, the EU has been an undoubted success although it remains a relatively insular group despite the larger nations, Germany and France in particular, seeing the group needing even closer ties to influence the likes of the U.S., China and Russia on the world stage.

While EU Heads of State become as embroiled as Angela Merkel has these past few weeks in domestic matters, the further Federalization of Europe is unable to take any major step forward.

The single currency rallied a little yesterday in relief that the immigration argument plaguing the German Coalition Government has been, if not solved then at least “kicked down the road” for now.

Such political issues are going to be even more of a feature until Brussels can formulate an immigration policy for the entire bloc that each individual nation can subscribe to. After Brexit, this is, by far, the most significant issue to be faced as there are so many radical approaches being considered and Germany adopting an open-door policy was not followed by any other nation. They simply sat back and allowed Germany to pick up the slack.

The right-wing of German politics has picked up on this and a rise in nationalism has followed.

The Euro managed to rally in relief that there are not, in the short/medium term at least, going to be fresh elections in Germany. It reached 1.1674 but is still a long way from breaking strong resistance between 1.1720 and 1.1780.

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.”