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By XE Market Analysis October 21, 2019 3:09 am
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    XE Market Analysis: Europe - Oct 21, 2019

    The pound, and to a lesser extent the euro, wobbled in Asia following the weekend's developments on the Brexit front. Parliament voted in favour of the Letwin amendment, which forced the government to request a three-month delay in Brexit -- although not actually intended prevent Brexit on October 31, but rather to ensure that Parliament has successfully ratified PM Johnson's divorce deal before October 31 and so guarantee that a no-deal scenario could not happen. Despite this insurance, the government still triggered Operation Yellowhammer -- its contingency plan that deals with a no-deal Brexit, which makes some sense as the EU hasn't yet granted an extension (indicating that it will wait on the MPs debate this week before deciding). A tumultuous week in Parliament now looms. The principal opposition, Labour, are planning to table amendments on the Brexit legislation that demands the Brexit deal be contingent on a confirmatory referendum. The odds for a second referendum are now looking much higher than they were. Johnson and his allies will be determined in trying to avoid this. Also, there has been a sift in alliances with regard to delaying Brexit, which the Brexit Party now favouring a delay, such is its distaste of the deal on the table. Northern Ireland's DUP is also working against the government, though on the other hand, a number of Labour MPs have indicated that they will support the government's deal. Cable dove by nearly a big figure in making a low at 1.2888. The pair has since recoupled to the mid 1.2900s, but remains net lower on the day. We expect the pound to remain broadly underpinned given the guarantee against a no-deal exit on October 31 and with a second referendum now looking like a good possibility (and on the assumption that the EU won't disallow an extension, if one become necessary to avoid a no-deal Brexit). Elsewhere, the main currencies have started the week in narrow ranges, though the euro saw some downward drift. EUR-USD printed an intraday low at 1.1152.

    [EUR, USD]
    EUR-USD posted an 11-week high at 1.1172 before settling back moderately. The euro has been benefiting from the progress on the Brexit front, with the UK and EU striking a deal on divorcing terms last week. The deal is now in the hands of the UK's Parliament. The dollar, meanwhile, has been weighed down somewhat by a run of U.S. data that has fed the "risk of recession" narrative. EUR-USD last week clocked its first run of three consecutive up weeks since the late June to early July period.

    [USD, JPY]
    USD-JPY has settled above the six-day low see on Friday 108.38. An ongoing sputtering price action in risk-wary global stock markets should keep the pair on downward bias. USD-JPY has been trending upwards since the August-25 low at 104.45, which is a 35-month nadir. The prevailing up-phase marks a correction in the bear trend that has been unfolding from the October-28 high at 114.55.

    [GBP, USD]
    The pound took a dip in Asia following the weekend's developments on the Brexit front. Parliament voted in favour of the Letwin amendment, which forced the government to request a three-month delay in Brexit -- although not actually intended prevent Brexit on October 31, but rather to ensure that Parliament has successfully ratified PM Johnson's divorce deal before October 31 and so guarantee that a no-deal scenario could not happen. Despite this insurance, the government still triggered Operation Yellowhammer -- its contingency plan that deals with a no-deal Brexit, which makes some sense as the EU hasn't yet granted an extension (indicating that it will wait on the MPs debate this week before deciding). A tumultuous week in Parliament now looms. The principal opposition, Labour, are planning to table amendments on the Brexit legislation that demands the Brexit deal be contingent on a confirmatory referendum. The odds for a second referendum are now looking much higher than they were. Johnson and his allies will be determined in trying to avoid this. Also, there has been a sift in alliances with regard to delaying Brexit, which the Brexit Party now favouring a delay, such is its distaste of the deal on the table. Northern Ireland's DUP is also working against the government, though on the other hand, a number of Labour MPs have indicated that they will support the government's deal. Cable dove by nearly a big figure in making a low at 1.2888. The pair has since recoupled to the mid 1.2900s, but remains net lower on the day. We expect the pound to remain broadly underpinned given the guarantee against a no-deal exit on October 31 and with a second referendum now looking like a good possibility, and on the assumption that the EU won't disallow an extension, if one become necessary to avoid a no-deal Brexit.

    [USD, CHF]
    EUR-CHF has been lifted by the Brexit deal, which has been supportive of the euro. The cross printed a two-and-a-half-month high at 1.1059 last week before pulling back under 1.1000.

    [USD, CAD]
    USD-CAD on Friday posted a fresh two-and-a-half-month low at 1.3119. Increasing signs of U.S. turbulence in the U.S. economy, including a miss retail sales, which is ominous in so far as it shows the slowing in manufacturing and business investment is spreading to the all-important consumer sector, has been taking a toll on the U.S. dollar. USD-CAD has been amid a sideways chop since mid January, ranging from 1.3016 on the downside to 1.3565 on the upside. More of the same looks likely.

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