Daily Market Brief 24 Mar 2017

Reality of Government hits Trump

March 24th: Highlights

  • Healthcare bill stalled
  • Resistance levels hold for Euro and Pound
  • U.K. retail sales upbeat

Consumer continues to support U.K. economy

The British consumer continues to spend ignoring the possible headwinds for the economy that will come with the triggering of Article 50 next week.

Retail sales data released yesterday surpassed market expectations rising by 3.7% YoY compared to a 1% rise in February and an expectation of a 2.6% increase.

The consumer has been the one positive constant recently as the economy has seen inflation reaching new highs. Prices paid “at the factory gate have also seen large increases indicating inflation won’t fall anytime soon.

The pound again “dipped a toe in the water” above 1.25 but importer sales halted its progress and it slipped back to close virtually unchanged at 1.2492.

Traders are now in a state of preparation for next week’s triggering of Article fifty which will fire the starting pistol for negotiation of the U.K.’s departure from the E.U. Since this a totally unique event, how traders (and the pound) will react is a total matter of opinion. There will be no immediate effect on the economy but we may see some justification in the BoE Governor’s stance on interest rates. Carney will have been in close discussion with the Finance and Brexit Ministers to ensure that the economy and currency do not suffer unduly during the negotiation.

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U.S. Administration Fretting over Healthcare

President Trump is starting to experience just what it means to be at the head of the huge machine that is the U.S. Administration. His plans to roll back the Obamacare programme instigated by his predecessor have stalled as Congress is concerned with what will fill the void.

The dollar initially fell when it seemed that the Bill would fail but recovered its poise to rise from close to important (dollar) supports at 1.2500 and 1.0800 for the pound and Euro respectively.

Further negotiation will now take place following the postponement of the vote and traders have pinned their hope on the persuasive power of a President who prides himself on such qualities.

Against the JPY, the dollar was also a little stronger climbing from a four-month low of 110.62 seen on Wednesday. The counter-intuitive rise in the Yen following a scandal that threatens to engulf Prime Minister Abe has abated somewhat. Any renewal of global risk aversion will see the Japanese currency test strong (dollar) support at 110.20/40. This level has survived three tests in the past eighteen months. And the dollar has rallied strongly after every fall.

Article 50 and Brexit set to become a reality

Since the jaw-dropping vote on June 23rd last year when the U.K. voted, against all odds, to leave the E.U., the whole matter has become cloaked a mist of disbelief. The reality of the vote will, finally, be formally acknowledged next Wednesday when Prime Minister Theresa May writes to the (ever popular) President of the EU Council Donald Tusk whose own countrymen refused to endorse for a second term in office.

The Brexit Minister, David Davies, will have been honing and fine tuning his opening negotiating stance in close discussion with the Prime Minister. It is impossible to believe that Mr Tusk have been preparing any less. There is a sense of expectation pervading traders who, for the first time in many years, are facing an event that is totally unprecedented. There is no similar event from the past they can refer to. To some extent, almost uniquely, traders will be reliant on the wider users of the market; importers, exporters money managers and investors for guidance.

This event will go a long way to show that traders are more guardians of the market, expeditors of the needs of market users, than they are drivers of sentiment.

Le Pen’s “shameless electioneering” upsets British Government

Finally, there must be some mention of the tragic events that unfolded around the Houses of Parliament on Wednesday afternoon. It is perhaps a tribute to the British Intelligence Community that it has been some years since such are serious event occurred.

Marine le Pen drew some additional support from French voters using the event to call for tighter border controls and provoking the French public to recall tragic events that have occurred there over the past two years or so. However, the British Government were less than impressed that such an event could be used for such overt opportunism.

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.”