May’s Hollow Triumph
November 23rd: Highlights
- Parliament awaits as May hails deal
- Euro steady despite headwinds
- Thanksgiving Holiday dampens dollar activity
Agreeing on the deal in Brussels could be the easy part
Donald Tusk, the EU Council President said that the deal had been agreed on at the negotiator level, and there had been a signal of agreement in principle from the remaining members of the EU but, perhaps significantly, he said it was expected that the Heads of Government would ratify the draft at the emergency Summit on Sunday.
There has been no mention of the “Gibraltar question” or North Atlantic fishing rights but it is doubtful that these issues have, yet, been resolved.
The pound reacted positively, yet cautiously, to the news of the breakthrough and will await reaction from London before testing the pivotal 1.3000 level versus the dollar. It made a high of 1.2928 but drifted lower to close at 1.2880.
The “Bank of Brexiteers” have gone a little quiet since it now seems that their bluster about 80 rebel MPs turned out to be so much hot air. The review of the final document may bring more rebels to the cause, but Mrs. May’s future is secondary to her task of getting the agreement through Parliament which currently makes Herculean seem mundane.
Euro in calm before the storm
Thanksgiving couldn’t have come at a better time for the markets as traders re-evaluate their ideas for the euro in the face of some considerable challenges. The Italian Budget argument could provide Brussels with similar difficulties to the Brexit deal but the potential volatility of the Italian Government makes the negotiation more trick if anything.
Brussels rejected the Italian Budget for 2019 for the second time and Deputy Italian Prime Minister commented that the one in form of Commissioners is the “only one they will receive”.
Should anarchy reign and an agreement not be reached, Brussels will be faced with considering the severity of sanctions and penalties over an event that has never happened before. The EU commission is not known for its creative thinking so a fine is the most likely course of action.
Rome will refuse to pay and, as matters stand, showcase its 2019 budget to the population before year end.
Holiday shortened week gives Powell time to think
Powell is very much his own man as can be demonstrated by his defiance of Trump’s calls for the pace of rate hikes to slow. He has even resorted to name-calling, labeling the FOMC as “loco”.
The dollar index was in a highly reactive mood yesterday as U.S. traders were absent from their desks.
It fell to a low of 96.32. Eventually closing at 96.50. Today is unlikely to be any different as “Black Friday” starts across the entire country.
This ritual is now considered vital by retailers and is a useful gauge of the mood of consumers.
Next week, core personal consumption data will be released. This is the Fed’s preferred measure of inflation. Market expectation is for a QoQ rise of 1.8% from 1.6% which will provide support for the continued tightening of monetary policy.
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.”