US Session Forex Brief, Jan 17 – Risk Sentiment Falters as Brexit Gets Dragged on Once Again
Skerdian Meta • 4 min read
The Brexit deal that British Prime Minister Theresa May had agreed with the EU was voted off by the British Parliament on Tuesday and yesterday she went through a confidence vote. She won the confidence vote yesterday, but I suppose markets were expecting or wishing that she would fold her cards and go this time, even though she had more support for this vote compared to the Brexit deal.
If she had lost the confidence vote in the Parliament yesterday, the chances for new elections would increase drastically and at this point, the opposition Labour Party has every chance to win. From what Labour leader Jeremy Corbyn has declared recently, a Labour government would bring Brexit back to the people for another referendum. Considering that the British public is a lot more informed about Brexit now that they were two and a half years ago, the remaining side would probably win.
That would improve the sentiment considerably since it would remove one of the major European and global issues. That didn’t happen; Theresa May won and that’s why the sentiment has turned slightly negative today with GOLD trading near the top of the range at $1,294-5 for a couple of sessions. Although in the last hour or so, Gold has lost some of yesterday’s gains.
We had the European inflation report as well this morning. Core CPI (consumer price index) remained unchanged at 1.0% which is the lower limit for the European Central Bank (ECB). But, the headline inflation number declined again, this time by three points, falling to 1.6% from 1.9% previously. So, the ECB must take notice, although the Euro didn’t.
The European Session
- Italian Trade Balance – Italian trade balance surplus was expected to decline to 2.89 billion Euros in November from 3.78 billion in October which was revised higher to 3.82 billion today. Although, trade surplus increased to 3.84 billion that month, with exports increasing by 0.7% while imports fell by 1.3%.
- Brexit Deal Balanced for Barnier – EU’s chief Brexit negotiator Michel Barnier commented this morning saying that the Brexit deal is balanced and respects Britain’s red lines. He added that if UK’s red lines move, the EU will also move immediately, whatever that means.
- Demand for Mortgages and Loans in UK Falls Ahead of Brexit – The Bank of England published its quarterly credit conditions survey which confirm that UK lenders expect demand for mortgages as well as for credit cards over next 3 months to fall at the fastest pace in 8 years. No surprise there.
- Eurozone Inflation Report – The inflation report for December in the Eurozone was released this morning and CPI remained unchanged in December as expected. The year-on-year CPI inflation also remained unchanged at 1.0%, but the headline CPI fell to 1.6% from 1.9% in November, against 1.7% expected.
- Eurozone Construction Output – Construction output declined by 0.1% in November in the Eurozone from -1.6% in the previous month. That’s the second negative month, so the economy is really heading down in Europe. But, the YoY construction output still remains positive growing at 0.9%.
- Motion on UK Govt Next Brexit Steps Will Come in January – House of Commons Leader Andrea Leadsom commented earlier that Theresa May’s government will come up with steps on Brexit in January 21. We heard rumours earlier that May refuses to rule out no-deal Brexit. Philip Hammond faced backlash from May’s cabinet reportedly for after calling for no-deal Brexit to be taken off the table, so that’s still an option.
- May’s Offer of Talks Were Just A Stunt for Corbyn – Jeremy Corbyn commented later that May seems prepared to send the country into a no-deal Brexit. He added that the best outcome for this crisis is a general election.
The US Session
- OPEC Oil Production Falls – OPEC output declined by 751k barrels per day in December as Saudi Arabia made an early start to cut production by 468k bpd. Later on, Russia’s Novak said that Russia will try to accelerate oil production cuts. He added that they will try to cut output faster and will strive to make oil output cuts smoothly.
- ADP Non-Farm Employment Change – The US ADP non-farm employment change increased by 39.1k in November but that number was revised higher to 74k today. Although in December, non-farm employment declined by 13k which is the second decline since June.
- Philly FED Manufacturing Index – This manufacturing index started to decline in October after it peaked at 22.89 points in September, falling to just 9.4 points last month. Today it was expected to increase slightly to 9.7 points but instead it jumped to 17 points, which shows a pickup in manufacturing activity this month.
- US Unemployment Claims – Unemployment claims jumped higher to 231k in the last week of December but they returned to their normal range last week. They were expected to increase slightly to 219k last week, but instead they declined, coming at 213k.
- Barnier Still Leaves the Door Open For UK – Michel Barnier popped up once again just now saying that if Britain wants a deal that goes beyond free trade, they are open. He added that Brexit agreement negotiations with UK PM is the best possible and he remains determined to work on a Brexit deal.
Trades in Sight
- The trend has been bearish for more than a week
- The 20 SMA has been pushing this pair lower
- The retrace higher is complete
- Doji candlesticks are pointing to a reversal down
EUR/USD is getting pushed lower by the 20 SMA
We went short on EUR/USD earlier in the European session as this pair was retracing higher. The retrace looked complete on the H1 chart since stochastic became overbought. The price was also finding resistance at the 20 SMA (grey) which has been defining the downtrend for about a week, pushing the price lower. The price formed a couple of doji candlesticks at the 20 SMA as well. They point to a bearish reversal which has already started.
Not much action in forex today apart for a 50 pip dive in USD/JPY this morning as sentiment turned negative again. Gold is doing its up and down ritual of the last two weeks, so again there is no real bias in the forex market today. We will trade whatever comes along.