Morning Brief – Thursday 16th

Chicken

The question on everyone’s lips yesterday afternoon was, ‘what on earth has to happen to move markets?’. The day started with a considerable appreciation within safe haven assets with the Japanese Yen and Swissie making early breaks skywards. US and German treasuries also rallied with the yield falling on Washington’s 10-year treasury note by 4 basis points in the first two hours of European trading. The market action thought to facilitate the purchase government debt and safe haven currencies was the sale of global equities as investors eschewed risk.

However, with all this brewing beneath the surface, the Pound, Euro and US Dollar barely blinked. A slightly weaker Sterling market reflected frustration within cross party talks, however, by and large, markets stood steady throughout the morning.

Then the afternoon headlines came to join the party with reports suggesting that senior conservative lawmakers were putting pressure on the Prime Minister to set a deadline for her premiership. With Theresa May promising to head back to the House in early June for the fourth time, headlines also crossed terminals suggesting that defeat was inevitable. The Pound sunk lower in its trading range touching two month lows and passing key resistance levels against both the US Dollar and the Euro to ultimately tally its 8th consecutive working-day loss against the Euro. Yet as trade continued, the conviction to produce a weaker Pound dissipated.

Later came the turn of the Euro. Yesterday afternoon, Bloomberg reported that Donald Trump would delay tariffs threatened to be imposed upon imports of automobiles from the EU and Japan. With trade negotiations at the forefront of European foreign policy ahead of the European elections later this month, the news could have been thought to deserve to have a serious impact on the value of the European single currency.

With a sharp appreciation against the Pound Sterling and, even more so, against the US Dollar, traders reflected the more sanguine outlook to European and global growth as a result of the news. However, once again, the rally quickly ran out of steam, with the Euro erasing the entirety of its intraday gains against the Pound and much of its new-found value against the Dollar.

Add all of these spirits of the flames together and you end up with a cocktail surely too potent for even the hardest of stomachs. But in terms of price action, what does this mean? Well, according to the fair interpretation of the market, very little. Our three major pairs, GBPEUR, GBPUSD, and EURUSD closed within a handful of basis points from their opening prices in the European session. With the bond and equity markets taking the brunt of stomach churning  headlines, chatter of a spill over into foreign exchange markets is gathering pace. With game theorists still struggling over the game of chicken, eyes are peeled to see which pairs veer out of their range first.

Discussion and Analysis by Charles Porter

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