Next 24 hours: Pound still feeling good about Brexit outlook
Today’s report: Letwin amendment makes for a less dramatic Monday open
Monday’s open in the Pound could have been far more dramatic, with any uncertainty now likely to be resolved during market hours, thanks to the Letwin amendment. We were heading into the weekend with it looking like the Pound would either rocket or collapse on the Monday open, as it reacted to the parliament vote on Boris Johnson’s Brexit deal.
Wake-up call
- producer prices
- More delays
- risk sentiment
- SNB policy
- US-China trade
- Canada election
- macro themes
- looking tired
- hard asset
- institutional demand
- traditional markets
Suggested reading
- Boris Johnson Has His Campaign Slogan Ready, T. Raphael, Bloomberg (October 20, 2019)
- Brexit: People's Vote Marchers Demand 'Final Say', S. Payne, Financial Times (October 19, 2019)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The downtrend off the 2018 high is looking exhausted and the prospect for a meaningful higher low is more compelling. A higher low is now sought out above the multi-year low from 2017, ahead of the next major upside extension. Only a weekly close back below 1.0800 would compromise this outlook. Back above 1.1412 will strengthen the view.EURUSD – fundamental overview
Flows have been more Euro supportive of late, with the single currency getting a lot of that prop from some broad based profit taking on US Dollar longs. Outgoing ECB President Draghi said the central bank stands ready to adjust all instruments if needed, though this did nothing to weigh on the Euro. German finance minister Scholz was seen helping the Euro, after saying his country's economic situation didn't require a rushed fiscal response and he expected growth momentum to revive into the end of the year. This follows Euro supportive ECB Holzmann comments earlier on Friday, in which the central banker said negative rates were a bad idea socially. Looking ahead, Monday's economic calendar is thin, with only German producer prices, and ECB Guindos speech and Fed Bowman appearance standing out.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market has seen a recovery out from the lowest levels since 2016, with the price recovering back above the daily Ichimoku cloud to take the immediate pressure off the downside. Ultimately, only back below the bottom of the daily Ichimoku cloud would compromise the more constructive outlook for the major pair. Next key resistance comes in the form of the 2019 high from March around 1.3380. Setbacks should ideally be well supported ahead of 1.2400.GBPUSD – fundamental overview
A Monday open dramatically departing from where we settled Friday was averted after UK parliament passed the Letwin amendment by a vote of 322-306. The amendment gives parliament more time to consider Johnson's deal and has also required the UK PM to request an extension from the EU. It is expected that the Prime Minister will look to get parliament to sign off on the deal as early as today and we should expect more volatility around these developments, though decidedly more welcome volatility with all of this now transpiring during market hours. Looking ahead, the market will continue to digest Brexit developments, while taking in a light calendar that features speeches from BOE Haldane and Fed Bowman.USDJPY – technical overview
The longer-term downtrend remains firmly intact, with the major pair recently taking out major support in the form of the 2018 and 2019 lows respectively. Rallies should continue to be well capped below 110.00 in favour of the next major downside extension towards the 2016 low at 99.00.USDJPY – fundamental overview
The Japanese government downgraded its assessment of its economy for the first time since May, citing prolonged weakness in exports. BOJ Kuroda said the timing of a global economic recovery was being delayed, with global trade concerns weighing on manufacturing. Kuroda also added it was possible for Japan to further ease monetary policy. Meanwhile, Japan CPI data came in as expected. Most of the flow in the major pair continues to be driven off risk themes, with any renewed stress associated with the global economy fueling demand for the Yen. Looking ahead, the calendar is exceptionally thin for the remainder of the day, with only a speech from Fed Bowman standing out. The market will also be digesting some Japan trade data.EURCHF – technical overview
The market is attempting to recover out from its lowest levels in two years, with the recent break back above 1.1000 taking the immediate pressure off the downside and opening the door for a larger correction back towards next key resistance at 1.1160. Overall however, the medium-term picture continues to favour the downside, and the market could have a hard time pushing much beyond that solid previous support turned resistance around 1.1160.EURCHF – fundamental overview
The SNB remains uncomfortable with Franc appreciation and continues to remind the market it will need to be careful about any attempts at trying to force an appreciation in the currency. But the SNB will also need to be careful right now, as its strategy to weaken the Franc is facing headwinds from a less certain global outlook. Any signs of sustained risk liquidation, will likely invite a very large wave of demand for the Franc that will put the SNB in the more challenging position of needing to back up its talk with action, that ultimately, may not prove to be as effective as it once was, given where we're at in the monetary policy cycle.AUDUSD – technical overview
The market has been under pressure over the past several months, but has also been well supported on dips. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7100 to strengthen this outlook. In the interim, look for setbacks to continue to be well supported above 0.6700 on a weekly close basis.AUDUSD – fundamental overview
RBA Lowe said lower interest rates were working, with the economy gradually improving. The central banker added the housing market was turning around, while Australian Treasurer Frydenberg said the government's plan to return a budget surplus while growth slowed, would not derail the economy. Looking ahead, the calendar is exceptionally thin for the remainder of the day, with only a speech from Fed Bowman standing out.USDCAD – technical overview
The longer-term structure remains constructive, with dips expected to be well supported for renewed upside, eventually back above the 2018/multi-month high at 1.3665. At this point, only a weekly close below the psychological barrier at 1.3000 would compromise this outlook.USDCAD – fundamental overview
The Canadian Dollar has enjoyed a recovery in recent sessions, with the Loonie initially getting a boost from positive news on the global trade front, before gaining momentum on solid local data. We've also seen the Loonie benefit from broad based profit taking on long US Dollar exposure. Looking ahead, the market will be focused on fallout around the Canada election, while also monitoring the price of OIL and taking in a speech from Fed Bowman.NZDUSD – technical overview
Despite recent weakness, there's a case to be made for a meaningful bottom, with the market rallying out from longer-term cycle low area around 0.6200. As such, look for setbacks to be well supported in the days ahead, in anticipation of a continued recovery. Only a weekly close below 0.6200 would give reason for rethink. Back above 0.6451 will strengthen the outlook and take the immediate pressure off the downside.NZDUSD – fundamental overview
Kiwi price action has mostly revolved around updates on the macro front relating to broader risk. The currency has benefited from broad based profit taking on US Dollar longs as well and has received and added boost from the news that the Bank of New Zealand raised its 2019-20 milk price forecast. Looking ahead, the calendar is exceptionally thin for the remainder of the day, with only a speech from Fed Bowman standing out.US SPX 500 – technical overview
There have been signs of a major longer term top, after an exceptional run over the past decade. Any rallies from here, are expected to be very well capped, in favour of renewed weakness targeting an eventual retest of strong longer-term previous resistance turned support in the form of the 2015 high at 2140. The initial level of major support comes in at 2854, with a break below to strengthen the outlook. A monthly close above 3000 would be required to compromise the outlook.US SPX 500 – fundamental overview
Although we've seen the market extending to fresh record highs in 2019, on the back of the Fed policy reversal, with so little room for additional easing, given an already depressed interest rate environment, the prospect for a meaningful extension of this record run, on easy money policy incentives, should no longer be as enticing to investors as it once was. Meanwhile, tension on the global trade front should continue to be a drag on investor sentiment despite any signs that would suggest otherwise. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as the movement here is something that could be a major stress to the financial markets looking out.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, and suggests the market is in the early stages of a bullish move that follows a multi-month consolidation. The next major level of resistance comes in around 1600, while in the interim, look for any setbacks to be well supported above 1400.GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and trade war threats. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.BTCUSD – technical overview
The market continues to correct and consolidate in the aftermath of a major surge in the second quarter of 2019. However, any setbacks should be very well supported around 7,000, with an eventual higher low sought out in favour of a bullish continuation back above the 2019 high and towards the record high from late 2017 further up. Ultimately, only a weekly close below 5,750 would compromise the constructive outlook.BTCUSD – fundamental overview
Bitcoin is going through a period of technical adjustment after the fierce Q2 run up, though we anticipate continued demand from institutional players starved for yield in a world where global equities are increasingly vulnerable. Plenty of demand is reported on dips down towards $7,000.BTCUSD - Technical charts in detail
ETHUSD – technical overview
The market is in the process of a major correction after a surge in the second quarter of 2019. Look for setbacks to be well supported above of previous resistance turned support at 150 on a weekly close basis, in favour of the next major higher low and bullish resumption back towards and through the 2019 high up at 363. Ultimately, only a weekly close below 150 would compromise the outlook.ETHUSD – fundamental overview
Profit taking in the aftermath of the rapid Q2 appreciation has triggered a healthy period of correction and consolidation, while critique of the space from the likes of President Trump and Fed Chair Powell, along with worry associated with fallout in the global economy, are stories that could continue to keep the more risk correlated crypto asset weighed down in the second half of the year. Risk off in the global economy is expected to result in ETH underperformance relative to Bitcoin.