Global Themes

Sterling hinged on Brexit; the week ahead
- Sterling posed for Parliament debate
- Buoyant dollar to face data test
- Political risk to weigh on Euro

GBP

Sterling posed for Parliament debate
Brexit developments are likely to dominate the headlines and dictate market direction yet again this week. Parliament will debate UK Prime Minister Theresa May’s Brexit plan on Wednesday with possible amendments being voted for on Thursday. Sterling lost over 1% against the US Dollar last week dropping from $1.3083 to $1.2947 as the PM struggled to make any headway with the European Union (EU).

Ms May will announce this week that she will give parliament another chance to voice their opinions on Brexit by February 27th as she tries to buy more time to negotiate a new deal with the EU (source: Reuters). Ms May will accept an offer to meet with Labour leader Jeremy Corbyn with less than 50 days to go until the UK leaves the EU to try and break the Brexit deadlock, the PM indicated that their teams should meet “as soon as possible” (source: Sky News).

Any Sterling movements this week will be hinged on Brexit developments with the possibility for volatility to be heightened. Should the PM struggle to make any inroads the Pound could quickly fall below $1.28 and back towards €1.12. 

USD

Buoyant dollar to face data test
The US Dollar surged against both the Euro and Sterling last week, gaining over 1% against both respectively. GBP/USD dropped from $1.308 to $1.294 while EUR/USD dropped from the mid $1.14 level to $1.13.

This week, the dollar will be tested by a whole host of economic data releases. On Wednesday, US inflation will be released for the month of January, this will be followed by retail sales, durable goods and continued jobless claims data on Thursday. The week will be capped off by industrial production data on Friday. The dollar’s trading direction for the week will be heavily influenced by these data releases and any potential safe haven buying from any Brexit fall out.

US Congress could be forced into another shutdown this Friday as talks breakdown over funding on border security. Another political shutdown could weigh on the dollar and allow its peers to appreciate. 

EUR

Political risk to weigh on Euro
Politics within the Eurozone could weigh on the single currency this week. Spanish Prime Minister Pedro Sanchez could face an early election if his budget plan fails to pass this Wednesday. Whilst over in Italy the far-right party The League overtook its coalition partner the Five Star Movement in regional elections (source: Bloomberg). The League has voiced its anti-EU stance and supported ideas such as Brexit. The continued increase in popularity for The League party could worry some investors ahead of the European elections in April as this political party could further destabilase the EU.

Thursday will see Eurozone Q4 Flash Gross Domestic Product released at 10:00am. Though forecast is to see no change in the previous number for both the q/q and y/y, the European Commission cut growth forecasts for 2019 citing a slowing global growth as a concern for the single market (source: Reuters). European Central Bank President Mario Draghi is set to speak at a Eurogroup meeting in Brussels today and tomorrow. Any new dovish developments from Mr Draghi could again see a spat of Euro selling.

EUR/USD hovers above the $1.13 handle this morning, the pair has been trading between $1.13-$1.15 for the most part since October 2018 with slight break outs on either side. Should this region fail to hold, $1.1214 could be the next level of support as this was 2018 low. 




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