Currencies: Sterling Jumps As EU And UK Make Step Forward In The Brexit Process

Fundamental analysis of Forex market

Rates: Core bonds to stay little changed in low-volume trading
German Bunds hardly profited from yesterday’s equity slump with low-volumes as US markets were closed. We expect global risk sentiment to be in the driver’s seat for today as well with only EMU PMI’s catching the eye on the economic calendar. The timid risk sentiment could provide some support for bond markets.

Currencies: Sterling jumps as EU and UK make step forward in the Brexit process
EUR/USD gained a few ticks in thin trading conditions yesterday. The EU and the UK agreeing on a political text on their future relationship was a marginal positive for the euro, but propelled sterling. Today, USD trading will probably still be sentiment driven. GBP-traders are counting down to the EU Brexit summit on Sunday.

The Sunrise Headlines

  • US markets were closed yesterday in observance of Thanksgiving Day. Asian equities are trading mixed with China (-2%) underperforming. Japan’s Tokyo Stock Exchange is closed for Labour Thanksgiving Day.
  • Oil prices slump again on Friday amid oversupply worries after Saudi Arabia signalled it has boosted output to record levels. Meanwhile US crude inventories rose for the 9th week in a row, the longest streak since March 2017.
  • EMU consumer confidence dropped from -2.7 to -3.9 in November, the lowest since March 2017, yet well above its multiyear average. That is more than markets expected (-3.0).
  • China’s Vice Commerce Minister Wang said on Friday that officials of both the US and China were in close contact. He hopes disputes can be resolved by an equally footed and mutually beneficial dialogue. Trump and his Chinese colleague Xi-Jinping are expected to meet during the G20 summit next week.
  • Greece’s central bank elaborated a plan to remove non-performing loans from banks by transferring them to a bond funded SPV. 45% of Greek bank loans are classified as non-performing. The proposal aims to reduce that to a single-digit ratio.
  • US Congress is to decide about federal funding next month. President Trump warned of a government shutdown if no more money is provided for a wall between the US and Mexico.
  • Today’s economic calendar is rather meagre with only EMU, German and French PMI (November) data to be published. US markets close early for Black Friday.
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Currencies: Sterling Jumps As EU And UK Make Step Forward In The Brexit Process

Sterling gains on Brexit agreement, for now.

USD trading developed in slow-motion modus yesterday with US markets closed for Thanksgiving. Sentiment in Europe stayed cautious. However, the risk-off had no lasting negative impact on EUR/USD. The news flow on Italy remains diffuse, but investors apparently see room for talks between the EU and the Italy. EUR/USD spiked briefly higher after the announcement of a Brexit deal, but the gains couldn’t be sustained. EUR/USD finished marginally higher at 1.1403 (from 1.1384). The dollar also lost a few ticks against the yen (112.95 vs 113.06). This morning sentiment remains risk-off. Especially Chinese markets suffer on new headlines on the trade/technology war between the US and China (Huawei). The trade-weighted dollar (DXY 96.45) trades with a tentative negative bias. EUR/USD is changing hands just north of 1.14. US traders return from the Thanksgiving holiday today. There are few US data, but media headlines/projections on Black Friday activity might influence global sentiment. In Europe, November PMI’s will be published. A marginal further decline for the composite EU measure is expected (53.0 from 53.1). We (and markets) will look out for signs of a bottoming out process after the dismal performance of the previous months. A positive surprise might be slightly euro supportive. At the same time, sentiment on risk remains fragile. Italy and Brexit remain a source of uncertainty, too. We had a neutral bias on EUR/USD. Earlier this month, the USD lost momentum as investors ponder whether the up-tick in volatility might cause the Fed to slow policy normalisation. Still, we think it’s too early for a sustained market repositioning away from the USD. The news from Europe is mixed at best. This week, the euro didn’t perform that badly. Some further limited gains are possible in a daily perspective. However, we maintain the working hypothesis that EUR/USD 1.15/1.1621 resistance won’t give away easily.

Sterling enjoyed a positive repositioning yesterday as the EU and the UK announced agreement on a political text on their future ties. This opened the way for a formal Brexit approval at an EU summit on Sunday. EUR/GBP closed the session at 0.8855 (from 0.8910). Late yesterday, BoE’s Saunders also gave quite a hawkish assessment on the BoE approach going forward. Unexpected developments in the Brexit process are always possible, but we assume more wait-and-see trading for sterling as markets are counting down to Sunday’s Summit. We stay cautious on sterling as long as uncertainty on final vote persists

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