Market Drivers September 26, 2019
Its been a generally quiet night of trade characterized primarily by dollar strength and pound weakness as the markets appeared to have found relief in the latest impeachment revelations while in the UK PM Johnson barreled straight for a no-deal Brexit sending cable towards the 1.2300 figure.
Yesterday’s release of the summary of the conversation between President Trump and Ukraine’s President Zelenisky showed no clear quid pro quo demands from Trump but it did confirm that he directly asked the President of Ukraine to investigate his election rival and turn over any evidence to his personal lawyer Rudy Giuliani.
The initial move by the market was one of relief as there was no clear criminal evidence in the transcript and the dollar rallied strongly in North American trade. So far that strength has more or less held up especially against the European currencies which are suffering their own woes.
In the UK PM Johnson appeared unrepentant after suffering defeat in the Supreme Court and continued to barrel towards a no-deal Brexit. The unapologetic stance has soured market sentiment and cable was inching towards breaking key support at the 1.2300 level. The market continues to believe that some sort of Brexit deal will get done – or at very least another extension will be granted, but unless Mr. Johnson is compelled to ask for an extension UK may well crash out of EU with no deal. For now, the risks of such a scenario still look small but today’s trading action in the pound shows that part of the market is becoming increasingly alarmed.
The euro too was sliding into oblivion for most of the night as it approached recent multi-year lows at 1.0925. With no news on the docket, the move was more technical than fundamental as shorts looked ready to run the 1.0900 barrier in the absence of any action by the Germans take up fiscal stimulus.
The day ahead is full of central bank speak with Draghi, Carney, Clarida, and Bullard all scheduled to speak. Given their stances, there is little in the rhetoric that would surprise the market, but if the US monetary policy officials sound a dovish note, some of the dollar rally could reverse as the day proceeds.