27 November 2019: Market taking every poll seriously

Market taking every poll seriously

27th November: Highlights

  • Fall in Conservative lead drags Sterling lower
  • Dollar in a narrow range too high to buy too low to sell
  • Lagarde pushing for investment in climate change.

The major story remains the same. Brexit by January

With the General Election just a day over two weeks away, the Parties have set out their agendas and the electorate know where each stand on the major issues. Each has made spending pledges, offers of cuts in taxation and, mostly, made clear their position on Brexit.

In the past that would have pretty much been it, other than for a flurry of Party-Political broadcasts on TV but in today’s social media driven world campaigning can be done whenever and wherever the Candidate desires.

Candidates would generally have spent the final two weeks of the campaign ensuring re-election by spending time in their constituency.

Every new opinion poll has a significance of its own now, and the underlying message over the last 48 hours is that the Conservative lead has gone from unbeatable to healthy. It is inconceivable, since there has been no significant announcement that the latest set of results are anything more than within the margin of error.

This phoney war has two weeks more to run with the Party leaders desperately trying to defer difficult questions and avoid gaffes, no matter what they may say,

The UK’s distributive trades survey which provides a snapshot of the retail and wholesale distribution sector was released yesterday and can be best described as “less bad”. The data for this month “rose” from -10 in October to -3 this month. This was clearly a big improvement over both last month but more significantly, over analysts’ projections.

However, a true picture of the economy is still several months away as first the election and then Brexit remain the most significant drivers for both the economy and currency.

Yesterday, the pound drifted lower as the latest poll showed a fall in Conservative support. It made a low of 1.2834, closing at 1.2851

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Thanksgiving driven market may become less liquid

As the latest stage of the impeachment hearing concluding and the next stage not for a couple of weeks, the Head of the House Judiciary Committee has invited the President to either “attend or stop complaining about the process”.

Were he to attend, President Trump or his representative could question witnesses.

Having labelled the entire process a “witch hunt” Trump is unlikely to add what he would consider as credibility to the proceedings.by attending.

Today is a significant day for data releases in the U.S. It is headlined by the release of the first cut of the Q£ GDP data. Growth is expected to be unchanged from Q2 at 1.9%.

The risk according to commentators and analysts is for the number to be significantly lower. Jerome Powell would have been aware of the data over the past couple of weeks and his comments have been far from bearish. In fact, if anything, Powell has indicated that he believes that the economy is faring better than many realise.

While GDP is the headline, data will also be released for Personal Consumption Expenditures (the Fed’s preferred measure of inflation), Durable Goods orders and nondefense capital goods orders.

Given the market will be slowing down for the Thanksgiving holiday and liquidity may be low, any outliers or surprises may elicit a significant move for the dollar.

Yesterday the dollar index fell a little as the market’s stance turned neutral ahead of today’s data. It fell to a low of 98.23, closing at 98.26.

Volatility tumbles to record low

The markets sense of tauper when considering the single currency plumbed new depths as overnight data was published that shows volatility, (the amount by which the currency deviates in a given period) fell to record lows.

Traders have long ago given their view on the single currency, proclaiming that until there is some official intervention to improve consumption and the ECB does something other than pump liquidity into an already saturated market, there is little room for improved volatility.

Market participants often become complacent when volatility is low with hedging levels dropping as the situation is deemed likely to continue indefinitely. It rarely, in fact never does and there is little doubt there will be an event or reaction that brings the market back to life in the coming weeks or months.

To paraphrase a comment attributed to former U.S. Vice President Dick Cheney, “I don’t know when, I don’t know what and I don’t know how, but something is going to change”

The proximity of year-end will add to the sense of vacillation.

With solid support just below 1.10 having been tested a couple of times recently albeit half-heartedly, unless there is a major data surprise today in the U.S., the single currency is most likely to drift a little higher.

The ECB Chief Economist, Philip Lane will speak later this morning. He is unlikely to stray too far from his recent comments regarding interest rates and the shape of the yield curve. The ECB remains in its technocratic guise and until the new President can inject some colour, the Central Bank will be considered an insignificant player in the level of the currency and strength or otherwise of the economy.

Yesterday, the single currency traded in a narrow range versus the dollar. It traded between 1.1006 and 1.1025, closing just one pip below the high.

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.”