European equity markets have struggled for direction this week, with the main focus being on the comings and goings between Brussels and London. US markets have also had a mixed week with the S&P500 performing strongly, while the Dow has struggled due to Boeing’s ongoing woes.
The buoyancy in US markets was helped by a weaker than expected CPI reading, which helped put further downward pressure on US yields and reinforce the likelihood that the Fed would remain on the side-lines for the foreseeable future, however Asia markets have been less resilient slipping back as concern about economic numbers there kept investors on the back foot.
Last night the UK government went down to another defeat, albeit by a narrower margin than the first vote, but still by the considerable margin of 149 votes, as 75 Conservative MPs and the 10 Democratic Unionists voted against the withdrawal agreement.
It is far from clear that MPs will be given a third opportunity to vote on the deal, with MPs now set for a free vote later today, at 7pm on whether to vote to take no deal off the table, or whether to leave without a deal. If MPs vote for the former then the government would most probably look to bring forward a vote on a request for an extension.
While this is something that might well be easy to achieve as it kicks the can down the road, it is by no means certain that the EU might feel obliged to accommodate it, if the reason behind the request doesn’t have an endpoint goal behind it.
Furthermore, voting against a no deal Brexit doesn’t of itself remove the option of no deal, as this is already currently written in statute, and the EU could well decide to play hard ball and take the view that the only options available are the current deal, or to revoke article 50, given that President Juncker himself said this latest attempt to get the deal over the line was it, as far as further negotiations was concerned on Monday. This would be a high risk strategy, given that a no deal scenario isn’t a zero sum game. It could however concentrate minds amongst Brexiters of losing Brexit completely, and could mean that the withdrawal agreement might go back for a third attempt.
Donald Tusk President of the EU Council also reinforced this view that a no deal Brexit had become a much higher probability.
Against this backdrop today’s Spring Statement from the Chancellor is likely to be no more than footnote given that after last night’s defeat of the government, it is likely that the Chancellor will have to keep his powder dry. In the absence of a smooth transition at the end of this month any government forecasts for the UK economy are likely to be no more than educated guesses. The one plus point is that fiscal Phil has managed to build up a decent buffer due to better than expected tax receipts over the past 12 months.
EURUSD – the euro appears to have found a modicum of support at the 1.1180 area which is 61.8% retracement of the entire 1.0340/1.2545 up move. We now look to be squeezing higher with a move through the 1.1320 area targeting a move towards the 1.1400 area.
GBPUSD – pushed back to the 1.3290 level yesterday and still has trend line support at 1.2970 from the lows this year at 1.2430. The overall direction continues to be tough to call with a break below 1.2960 arguing for a move towards 1.2870.
EURGBP – made a 22-month low yesterday before rebounding strongly from the 0.8470 area. Could well head back to the highs this week at 0.8675 or the 0.8720 area. A move below 0.8520 retargets the 0.8470 area.
USDJPY – currently finding resistance at the 111.45 area and the 200-day MA. A push through 111.50 opens up a return to the 112.00 area. While below 111.45 the risk is for a return towards the 110.20 level.
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