Too high to Buy?
November 8th: Highlights
- Sterling short positions remain close to record levels
- Trump and Democrats both hail midterm results
- Euro in reactive mode as Italy budget row no closer to an agreement
“Secret” Brexit talks anger MPs
Despite rising optimism which has pushed Sterling well above the pivotal 1.3000 level versus the dollar, the level of short positions is only a little below the record levels seen in September.
If an agreement is reached which includes a resolution to the Irish border issue a further rally for the pound will doubtless ensue but the domestic hurdles will then come to the fore.
The Opposition Brexit Secretary has already commented that no matter the content of the deal, the Labour Party will vote against as his Party believes that Parliament has not been given enough opportunity to debate the agreement as it has been worked upon.
It is rumoured that the Cabinet has been given advance copies of the almost complete agreement document to study which has angered Brexiteer Government MP’s who also believe they are being kept in the dark. This also fuelled the fears of those same MP’s who are worried that the backstop deal between the UK and EU in which keeps the UK under EU rule will be extended for far longer than had been originally agreed despite Michel Barnier’s promise to “de-dramatize” the issue.
Sterling rose to a high of 1.3175 versus the dollar yesterday, closing at 1.3137. It has also continued to strengthen versus the single currency reaching 1.1485, its highest level since late May.
Midterm results as predicted as Trump hails victory
The dollar lost ground following the result with the index falling to a low of 95.68 but quickly received to close at 96.20 only a few pips lower on the day.
While the political picture has become a little more uncertain with a Democrat House and Republican Senate set to slow down several key parts of the President’s agenda, it is the threat of an investigation into Mr. Trump’s affairs that interests political analysts the most. He was almost immediately on the warpath at yesterday’s press conference, insulting CNN as nothing but fake news and promising that if the Democrats “come after him, he will respond in kind”.
The more significant economic activity this week surrounds the FOMC meeting which concludes today. Chances of a rate hike are low, but not completely out of the question. Chairman Powell is certain to retain his bullish assessment of the economy and this will lead the market into expecting a rise in rates at next month’s meeting if nothing happens today.
Macron calls for greater harmonization despite the rise in Nationalism
Despite the nationalist Government in Rome, the rise of nationalism in Hungary and the issues created by the recent regional elections in Germany, there are still calls for greater harmonization in many areas, both political and financial. A prominent German financier, and a possible candidate to replace Angela Merkel, recently backed calls for a single EU budget and cross-border unemployment benefits. Concurrently, Emmanuel Macron, the French President, called for a single European Army to fight what he called “rising threat from outside Europe”.
Italy continues to talk tough over its budget with the Prime Minister refuting claims that it must be Italy that makes concessions to solve the issue. “I have to make concessions to the Italian people, not the EU” retorted Giuseppe Conte when questioned on Italian TV.
The President of the ECB, Mario Draghi told the Italian Finance Minister at a recent meeting that Italy’s budget problems stretch well beyond EU rules and are a threat to the stability of the country. In Italy’s high debt low growth economy, budget cuts, rather than an expansion way beyond what are generally accepted guidelines, are what is needed.
The euro was in reactive mode yesterday as it reacted to both the U.S. election and more Brexit rumours in the UK. It traded in a 1.1500/1.1394 range closing at 1.1439, 21 pips higher on the day.
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.”