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Collinson FX: November 19, 2018 - KIWI urges again

by Collinson FX 18 Nov 2018 13:31 PST 19 November 2018
Sam Bullock starts the 2018 Coastal Classic and was the first to finish in Bay of Islands by a big margin © Richard Gladwell

Collinson FX: November 19, 2018 - KIWI surges again

Brexit dominated markets to close the trading week. Markets remain in a state of uncertainty in Europe, with the submitted ‘Brexit’ agreement not popular, as PM May fights for it’s passage and her own job!

The Labour Party will oppose the agreement and ‘Brexiteers’ may have the numbers to kill it. This would be the end of May. EU leaders have warned that there will be no more negotiations. France, Belgium and Spain want to make the divorce as painful as possible, as a deterrent for other members considering leaving, while Germany want ‘remain’. The GBP crashed to 1.2730, following the Cabinet resignations, but recovered to 1.2850, with a softer reserve. Support remains at 1.2700, but any breach could see the GBP tumble to 1.2000. There is huge upside if they negotiate a better deal or perhaps a hard Brexit with a new leader?

The US Dollar closed the week softer, allowing the EUR to regain 1.1400, despite all the turmoil of ‘Brexit’. The Italian budget crises is a major problem for the EU and this could trigger political upheaval. The Fed have indicated they will hold with their hawkish monetary policy, which should support interest rates and the Dollar. This did not happen to close the week, as 10 year bond yields fell to 3.07, while the Dollar fell. This assisted the bullish NZD and AUD, that have been travelling well, supported by strong domestic economic data. The AUD jumped above 0.7300, while the KIWI surged to 0.6850.

The biggest threat to these trade exposed, commodity currencies, remains the ongoing US/China trade war. Any breakthrough by the G20 would enhance the upward momentum, but failure could trigger big losses.

There is plenty of economic data releases to influence markets but ‘Brexit’ is likely to dominate European markets, while trade will remain a live issue.

Collinson FX: November 16, 2018 - Brexit bewilderment

The ‘Brexit’ war exploded once again! May presented her agreement to Cabinet and it was approved, but the resignations began shortly afterwards. The agreement was rejected by many in her Tory party and almost unanimously by the opposition, when she presented the deal to the Parliament. It is dead in the water and now other options are coming forward. The most likely scenario is a Tory coup, electing a ‘Brexiteer’ who will then organise a much better deal or steer Britain through a ‘hard Brexit’ on March 29..

This had understandable repercussions in the markets, with the GBP collapsing to 1.2750, which is around key lows and technical support levels. Something needs to happen and quickly, and it will. The GBP fall was against the tide of a softer Dollar, with the EUR regaining 1.1300. Oil remains stuck in the bear market, trading $56/barrel, despite threats of a cut in production from OPEC/Non-OPEC members. US 10 year Bond Yields came off, despite the Fed Chair reinforcing the hawkish monetary policy, citing the strong domestic economy. December rate rises were already in the book, so any blinking there, could signal a major directional change in policy and sentiment!

The NZD continues on its merry way, regaining 0.6800, as the reserve retreats, while the AUD pushed up to 0.7250. Australian employment data was better than expected, with the headline rate holding 5.0%, while participation rose. The NZ and Australian economies remain strong domestically, but the very nature of their trade dependence, mean they are extremely vulnerable to the US/China trade wars.

Markets are currently occupied with the Brexit developments and the impact on Europe and the UK. Italy remains a threat to the EU and ECB, with their own budget crises. US markets are suffering an equity squeeze, as markets continue to digest the fall-out from the Mid-Terms.

Collinson FX: November 15, 2018 - NZD does a Bolter

Markets were on a vigil, awaiting the UK Cabinet meeting to decide the ‘Brexit’ proposal, agreed by PM May. This agreement will not be a good one, but if it is acceptable to the cabinet, it may stand a chance of passing the Parliament. This would boost the GBP, in the short term, whereas a strong exit agreement would have driven the GBP back to pre-referendum levels. The GBP regained 1.3000, but anticipation has seen the currency slip back to 1.2950.

The EUR received a boost from the ‘Brexit’ agreement, but this was tempered by the Italian Budget crises. The Italians refused to curb their projected budget deficit (2.4% of GDP), despite an expired deadline, which could provoke sanctions. The proposed deficit spending is premised on very optimistic growth targets for the coming years.

Economic data globally was been overwhelmed with the Political developments, although UK CPI data was solid in contrast to softer German inflation numbers. US CPI was also steady, around 2.5%, but this is historical and may well be impacted by the divided Government that is coming down the line.

US equities were under pressure, as Apple entered an bear market, while Banks will come under pressure from Democrats incoming thus impacting there popularity. Goldman Sachs has another issue, the corruption surrounding the Malaysian scandal, which will need correcting by friendly US officials (especially ex-GS officials)?

The NZD has bolted, trading up to 0.6800, breaking technical levels and looks to be on a bull run. Strong economic data underpins the rally, but commodity prices and trade dependency remain a massive threats to the rally. The AUD holds 0.7200, but has missed the boat it’s trans-Tasman cousin embarked upon, allowing a blow out in the cross rate.

All eyes remain on the UK Cabinet and the European Commission and ECB.

Collinson FX: November 13, 2018 - Political In-fighting prognosis for US

Equity markets crashed lower again in the US to open the trading week. The share market sell off is understandable and we are now seriously looking at a technical market correction. Demand for the iPhone triggered a sell-off in Apple but was accompanied by GE, Goldmans’ etc.

The US Mid-Term election gave up split Government, which will probably lead to impasse. Bi-Partisanship is unlikely and therefore we can expect two years of political fighting and policy inaction. The Trump administration has created the policy settings, with the pro-growth tax cuts and deregulation, which should bode well despite policy inertia. Trump will now hit a road block, which will contaminate global growth.

The global growth story should translate into less pressure on interest rates and thus the Dollar. Any gains in currencies could be wiped out by local issues. Brexit is a threat to both the EUR and the GBP, while the US/China trade war will continue to hurt the trade exposed commodity currencies.

The sell-off in equities is risk-on and this was reflected in a stronger, safety play Dollar, with the EUR falling to 1.1250, while the GBP crashed to 1.2850. Brexit hurts both of these European currencies, while the Italian budget crises is a growing threat to the European Union. Commodity currencies gave up some of their recent gains, with the AUD dipping below 0.7200, while the NZD drifted to 0.6720.

These commodity based and trade exposed currencies will be driven by the progress in Chinese trade negotiations. There is a likelihood of an agreement by the G20, but the Chinese may decide to use the Mid-Term US election as leverage, extending the trade war.

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