deal or no dealHard to believe but the GBP actually had a good week this week, predominantly down to the reducing likelihood of a no deal Brexit. Prime Minister Theresa May made it quite clear last week that Parliament would be given a vote on whether to extend article 50 or “crash” out with no deal.

Clearly the majority of Parliament want some kind of deal which means that a no deal scenario has almost been taken off of the table.

Interestingly the EU chief negotiator Barnier reportedly said on Friday that he is prepared to look at changes to the withdrawal agreement particularly around the Irish backstop, so we could see further upside to the GBP this week. The EU is renowned for taking things to the wire and personally I think this will be no different, they did it with Italy only last year. Expect more positive rumblings out of the EU over the coming week.

Let’s look at the main headlines from last week’s releases:

  • The week started well for New Zealand with retail sales, particularly in hospitality, helping significantly be expectations with previous releases also being upgraded. Although the trade balance was significantly worse than expected and is likely to be due to the Chinese economic slowdown.
  • Adding to the above UK optimism we also saw Bank of England governor Mark Carney reassuring the markets that the Bank of England is ready to step in with liquidity if needed and that if the economy continues as expected we could continue to see a gradual hike in interest rates.
  • In the US we continue to see soft numbers which was highlighted when Fred chair Powell testified and confirmed the Fed’s desire to remain patient when it comes to further interest rate increases. Personal Spending was down quite a lot more than anticipated and we saw retail sales recently come out very negatively. However, despite that, the 2.6% GDP was quite a surprise. I’m sure Pres Trump won’t be pleased with 2.6% and he has already come out criticizing the Fed and the strength of the US dollar, so be cautious with the US dollar this week.
  • Canada missed many of its expectations last week, including GDP which contracted slightly. Core inflation also didn’t do so well.
  • Last but not least we saw inflation figures for the EU once again once again perform poorly.

What can we expect this week?

Last week we talked about significant dollar weakness if it was able to break the 55 EMA and rising trendline. While it did break the EMA the trendline held firm and there are very few barriers in the way as it creeps to the 97.0 level suggesting further US dollar strength.

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US 10 year yields moved away from the level of support we talked about last week.

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Equities look very bullish, especially in the US and China as fears of a trade war recede.

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With equities strengthening, yields increasing and fears over Brexit and trade was diminishing I think it’s fair to say we are in a risk on environment, therefore we can expect riskier assets to be in play. With the Nikkei increasing, we should also see the yen weaken.

We do need to be cautious this week, there is some big news! We have the RBA rate statement as well as Australian GDP, the bank of Canada rate statement and Ivey PMI, the Eurozone interest rate decision as well as the ever-present non-farm payrolls. Make sure you tread carefully around these particular events. There are unlikely to be any surprises but the key thing will be watching out for speeches following the events and look for forward guidance as to what the central banks may be considering in the future.

AUDJPY

Last week we talked about a pullback to the rising channel support which we started to see. With a general risk on environment, I’m still keen on longing this pair but would like to see a further pullback. Also we have big Aussie news so it might be sensible to wait before committing.

EURJPY

this pair is approaching a key area of confluence and I would be interested to short even though it is somewhat against the fundamentals. The reason I would be tempted is because both currencies are generally weak so from a fundamental perspective should cancel each other out.

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Dow Jones

Not something I would usually look at but I did and have found a possible position trade. The Dow Jones industrial is approaching a key area on the weekly, if we anticipate further upside for the USD we could see it reach this level and possibly take a short, or wait for a break and retest.

https://www.tradingview.com/x/qHhlFvOy/

That’s all for now folks, happy trading.