Week Ahead: Brexit Vote Starts Key Week For The UK

Market Analysis /
14 Jan 2019

USD

2019 marked a clear shift in policy for the Federal Reserve which has been dominating all US dollar moves over the last couple of weeks. The fear that this could continue into the coming weeks means we could continue to see erratic moves on both the US dollar and US stock markets. The decision by the Fed to hold off on any rate hikes for the foreseeable future has given Wall Street a much-needed lift, but with the upside in stocks comes the downside in the US dollar and subsequent volatility while investors remain in limbo.

With the government shut down still in full swing, the focus continues to remain on when, or if this mess will end, along with whether funding can be secured by the president for the Mexico border wall.  If we add this domestic discussion to the fallout from last week’s US-China trade talks, it appears we are looking at another week of unpredictability, and irrational moves for the Greenback.

The week is fairly quiet from a macroeconomic point of view, with retail sales and PPI data slated for release this week.

 

EUR

The Euro remains range bound, despite a large spike to the upside against the US dollar last week. The news flow around Europe is actually a little subdued at the moment, with Mario Draghi still looking to unwind the asset purchasing program. The single currency lost ground last week with new Italian banking sector fears and poor economic data releases clouding the outlook.

On Tuesday, Mario Draghi will speak to try and alleviate any fears around the stagnation in the Eurozone economy. But with so many subplots behind the scenes, such as Italian banks, German politics and the overall poor outlook for growth, gaining any traction this week for the Euro may be hard. Especially with the uncertainty around Brexit potentially starting to take its toll.

On the domestic front, CPI is the headliner for the week, along with trade balance, industrial production and  Draghi’s speech.

 

GBP

It is a pivotal week for the Sterling with the second attempt at a vote on Prime Minister Theresa May’s Brexit Withdrawal Deal slated for Tuesday.  This vote is a result of the Prime Minister previously canceling the first vote due to her impending defeat. It is widely expected that the Government will still lose this vote, leaving Brexit seriously in doubt.

On Monday Theresa May said that No Brexit was more likely than No Deal, which yet again puts the post vote scenarios into doubt. The most likely event is that after a defeat in the House of Commons the PM will ask for an extension to Article 50, however this only muddies the water further and leaves us in a situation where the Labour party would look to table a vote of no confidence while no deal can be agreed. The whole situation leaves Brexit and the stability of the Pound in question.

 

CAD

The Canadian Dollar rose last week along with the price of oil, to which it is correlated, but its gains were tempered by evidence of a homegrown slowdown. Like most developed countries, Canada seems to be projecting weaker than expected growth in the short to medium term, as oil price volatility and the effect of a global slowdown have an impact domestically.

At last week’s Bank of Canada meeting Governor Poloz continued to use the term “over time” when referring to changes in policy, giving the bank, some breathing room when it comes to further rate changes. However, Poloz did state that over time rates would still be moving higher. This week the Loonie will continue to focus on oil as well as the US-China talks, with domestic inflation data due out on Friday. CPI will likely have the biggest impact on the Canadian Dollar, and after the U-turn on rates by the BoC, a lower than expected inflation reading on Friday could reinforce the view and weigh heavily on the Loonie.

 

AUD

Last week’s main driver of the Aussie strength was built on the hopes of a breakthrough in talks between the US and China, due to Australia’s close trading links to China. The driver for the currency is likely to stay the same this week, after trade data was released from China overnight. The talks between the two parties concluded last week with significant progress made according to a number of accounts. However, the longer the talks take before a resolution is found the more detrimental it will be to the Australian Dollar.

 

NZD

The New Zealand Dollar posted gains on Thursday after regaining some of last year's losses and is set to do more of the same over the course of 2019, although it will be a long road to recovery.

On Thursday, Chinese officials said talks with U.S. counterparts have laid "the foundation for resolving issues" around international trade over the coming weeks, delivering a boost to investor risk appetite at a time when markets are on edge over the so-called trade war between the world's two largest economies.

With little domestic data due out in New Zealand this week, the US-China talks along with the US’ stance on rates will be the issues driving volatility for the week ahead.

The information provided here has been produced by third parties and does not reflect the opinion of AxiTrader. AxiTrader has reproduced the information without alteration or verification and does not represent that this material is accurate, current, or complete and it should not be relied upon as such. The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

More on this topic

See More News

Open your account. Apply in minutes.

Start your trading journey with a trusted, regulated, multi-award winning broker.

Open Account Try a Free Demo