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US Session Forex Brief, March 13 – Confusion Prevails in Markets After the Brexit Vote Yesterday

The Brexit meaningful vote on Theresa May’s deal took place last evening which we covered live on our forex calendar section, if you want to have a look. The GBP dived nearly 300 pips during the European session as everyone reached the conclusion that the deal wouldn’t pass the Parliament vote. So when the time came for British Parliament to vote, the markets remained relatively calm. As expected, the vote went against May’s deal. Theresa May didn’t resign after that, so the most likely scenario now is another extension of Article 50.

That leaves the situation where it was last week. Goldman Sachs says that a third vote on Theresa May’s deal is quite probable now. That has relived some of the tension for the GBP which has climbed around 100 pips since after the vote. The sentiment has also improved slightly in the financial markets and the stocks are trying to turn bullish after the retread down yesterday before the Parliament vote. The EU wants to know what the UK will try to change from this deal now besides what has already agreed, so they are leaving the ball on the UK side. Although, the overall sentiment in financial markets remains mixed since we’re not sure now where Brexit will be heading.

European Session

  • Italian Quarterly Unemployment Rate The unemployment rate has been declining steadily in Italy and in Q3 2018 it fell to 10.2% from 10.7% previously. Although it was expected to turn higher in Q4 of last year to 10.5%, it grew further to 10.6%. The number for Q3 was also revised higher to 10.3%, which means that Italy is still in difficulty.
  • Eurozone Industrial Production – The industrial production has declined in September, November and December last year in the Eurozone as the economy weakened further. Today’s report was expected to show a turnaround and increase by 1.0%, but the increase was bigger as the actual number came at 1.4%. Let’s hope the situation reverses in the Eurozone.
  • Spanish CPI – The inflation report from Spain was little changed for February. CPI index grew by 0.2% that month as expected. CPI Year-on-Year also remained unchanged at 1.1% as previously but core CPI YoY ticked lower to 0.7% from 0.8% previously.
  • May’s Brexit Deal Is Still the Most Likely Option for JP Morgan – JP Morgan has published odds for all Brexit scenarios:
  • Revised deal seen at 35% (previously 45%)
  • Long Brexit extension seen at 20% (unchanged)
  • Second referendum seen at 20% (previously 15%)
  • General election seen at 15% (previously 10%)
  • No-deal Brexit seen at 10% (unchanged)
  • EU Sticks to Tough Line on Brexit Extension – The EU 27 ambassadors agree that the UK has to find a majority for something for Brussels to consider a Brexit extension. That supports what we’ve heard from Donald Tusk yesterday that the UK must have a ‘credible reason’ to seek a Brexit extension. Michel Barnier added that it is up to the UK to find a way out of the impasse. The European Commission also added that the answers are in London, not in Brussels.

The US Session

  • Lighthizer Wants China to Change IP Rules – Ohio Senator Rob Portman commented earlier saying that the US Trade Representative Lighthizer won’t close China deal without changes on the intellectual property (IP) practices. Lighthizer is a ‘tough negotiator’ for him and is making progress. The US is in a ‘pretty good position’ in China talks.
  • US Durable Goods Orders – Durable goods orders beat expectation increasing by 0.4% in February against a 0.5% decline expected. Although, core durable orders missed expectations, declining by 0.1% against a 0.1% increase expected. But, the headline number for this month is positive and last month’s number was revised from +1.2% to +1.3%. Prior core orders which exclude transportation were revised much higher to +0.9% from 0.1% previously, so more positive numbers than negative.
  • US PPI Inflation – PPI inflation misses expectations in the US for February, coming at 0.1% against 0.2% expected. Core PPI also misses expectations of 0.2%, posting a 0.1% increase in February. Final PPI YoY remained unchanged at 1.9% against 1.9%.previously, although core PPI YoY ticked lower to 2.5% against 2.6% expected and 2.6% previously.
  • UK Finance Minister Cuts GDP Projections – UK Finance Minister Hammond published the Spring Statement with GDP growth revisions:
  • OBR 2019 forecast at 1.2% vs. 1.6% previously
  • OBR 2020 forecast at 1.4% (unchanged)
  • OBR 2021 forecast at 1.6% vs. 1.4% prior
  • OBR 2022 forecast at 1.6% vs. 1.5% prior
  • OBR 2023 forecast at 1.6% (unchanged)
  • 2018/19 deficit to GDP at 1.1% vs. 1.2% prior
  • Sees real wage growth in every year of forecast
  • Has revised up wage growth to 3% or higher in every year
  • Economy forecast to grow in each of next 5 years
  • Economy itself is remarkably robust
  • Last night’s vote leaves cloud of uncertainty over economy
  • US Construction Spending – Construction spending declined by 0.6% in December which was revised even lower today to -0.8%. Although, spending for this sector was expected to turn higher again in January; expectations were for a 0.4% increase but it came higher at 1.3%.

Bullish AUD/USD

  1. The trend has turned bullish this week
  2. The retrace lower is complete
  3. The 50 SMA has turned into support
This week’s uptrend is resuming again

AUD/USD turned bullish last Friday as the USD entered a bearish phase. It climbed nearly 100 pips. breaking above the 50 SMA (yellow) but it retraced back down yesterday after forming a doji candlestick at the top on the H4 chart. The retrace was complete earlier today though as stochastic became oversold and the 50 SMA turned into support. Now we are seeing this pair reverse higher again and resume this week’s uptrend.

In Conclusion

The economic data from the US is already out now since North America shifted clock one hour ahead last weekend. There’s not much left on the economic calendar, so I guess we will keep trading the market sentiment for the remainder of the day, which at the moment looks slightly positive.

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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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