Pound erases post-election gains; US indices continue to outperform

Summary:

• GBP falls across the board on No-Deal fears

• RBA minutes hint at possible further easing

• DE30 eyes retest of important support zone

• Dips in US stocks continue to be bought

There’s been some selling in the pound in recent trade as the markets have seemingly woken up to the risks and ongoing uncertainty that will remain in place despite last week’s landslide election victory for the Conservatives. The GBP/USD rate has fallen back below the $1.3170 level to trade beneath where it was ahead of last Thursday’s exit poll which sent the pound soaring.

The catalyst behind these declines appears to be reports that Boris Johnson is set to write into law that the transition arrangements with the EU must end by December 2021. This is something that the PM has said previously but the move to pass a bill to legislate it was unexpected by some and has raised concerns about a no-deal Brexit once more. To be clear, even if this bill is passed it could quite simply be superseded by a 1-line bill in the future. Even though the move is more symbolic than legally binding, it does suggest that the government’s approach towards Brexit hasn’t changed.

It also seems to suggest that for now the sizable majority held by the Conservatives means that the government will use this to play hard-ball with the EU, rather than to move back to the centre and alienate the more eurosceptic wing of the party. It has taken less than a week for the pound to complete a round-trip, illustrating that political uncertainty has far from been eliminated and that two-way risks remain for sterling going forward.

The Reserve Bank of Australian plans to reassess the economic outlook when it meets in February 2020 in order to decide whether further conventional monetary policy easing is required, the December’ minutes suggested. Although the Antipodean central bank still stuck to its view that the past three rate cuts have been working through the usual channels, it added that monetary policy has long and variable lags, therefore there will be a need to make a comprehensive analysis at the beginning of the next year. The bank also signalled that due to a high level of consumers’ indebtedness it may take more time before they boost spending in response to lower mortgage payments. After GBP the AUD is the worst performer in major FX space today. 

Bloomberg reports that Chinese authorities will grant more tariff waivers for the buyers of US agricultural products. While China seems reluctant to commit to purchase a specific amount of US farm products, the move hints that the Asian nations is in fact willing to buy more. Nevertheless, these news failed to lift moods at the start of the European trading session as main stock market indices from the Old Continent trade lower today. Yesterday’s recovery on the DE30 market was put to a halt in the 13400 pts area. Price remains above the prior support region around 13250 and this could be a key level to keep an eye on going forward. 

The US100 remains in an uptrend whichever way you look at it with the levelling off on the bottom of the H1 Ichimoku cloud around 8515 providing some potential support. Record highs of 8596 lie just over 10 points away.