Sterling Surges as BoE Hearing and May’s Cabinet Meeting Watched

Market overviews

Sterling rises broadly today on news that opposition labor is going to back second Brexit referendum. Meanwhile, the UK government is also considering delaying Brexit. The Pound stays firm entering in to European session and eyes will be on Prime Minister Theresa May’s post Cabinet meeting update. Meanwhile, Sterling will also look into BoE’s Inflation Report hearings.

Yen is following as the second strongest as Asian stocks pull back from yesterday’s rally. Only Chinese stocks are extending slight gain. Swiss Franc is the third strongest for now. Australian Dollar is back under pressure as the weakest one. Canadian Dollar follows as oil price dived yesterday follow Trump’s tweet urging OPEC to relax. Euro and Dollar are mixed. Some volatility in the greenback could be triggered by Fed Chair Jerome Powell’s semi-annual testimony to Congress later in the day.

Technically, GBP/USD is set to take on key resistance zone at 1.3174/3217. Decisive break will complete a head and shoulder bottom and confirm bullish reversal. EUR/GBP is also heading back to 0.8617/20 key support zone. USD/JPY and EUR/JPY are both worth mentioning. Both spiked higher late yesterday but quickly reversed. The break of 111.13 and 125.95 resistance could be bull traps.

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In Asian, Nikkei closed down -0.40%. Hong Kong HSI is down -0.69%. China Shanghai SSE is up 0.36%. Singapore Strait Times is down -0.30%. Japan 10-year JGB yield is up 0.0053 at -0.03%, still negative. Overnight, DOW rose 0.23%, S&P 500 rose 0.12%, NASDAQ rose 0.36%. 10year yield rose 0.018 to 2.673.

Sterling jumps as Corbyn supports second referendum, May mulls Brexit delay

Sterling jumps broadly as UK opposition Labour said they’re ready to back second referendum. Also, Prime Minister Theresa May is said to be considering delaying Brexit. Labour leader Jeremy Corbyn has been against another public vote on Brexit but finally bowed down to pressure inside his party. He formally said on Monday evening that “one way or another, we will do everything in our power to prevent no-deal and oppose a damaging Tory Brexit based on Theresa May’s overwhelmingly rejected deal,”. And, “that’s why, in line with our conference policy, we are committed to also putting forward or supporting an amendment in favor of a public vote to prevent a damaging Tory Brexit being forced on the country.”

Separately, Bloomberg reported that May will finally allow Cabinet discussion on extending Article 50 beyond March 29 on Tuesday. The Sun went further and said May would propose formally ruling out a “no-deal” Brexit scenario. May will chair a Cabinet discussion today in London morning, and that update the Parliament on discussions after noon. The government will propose motions on Brexit state-of-play by Tuesday night. The motion will be debated and voted on Wednesday.

Trump: China trade deal in advanced stages, very close to signing summit

Trump indicated overnight that the US is “very, very close” to completing a trade agreement with China. And there will be a “signing summit” with Chinese President Xi Jinping soon. Trump said that “we’re going to have another summit, we’re going to have a signing summit” and “so hopefully, we can get that completed. But we’re getting very, very close.”

He later also tweeted that “China Trade Deal (and more) in advanced stages. Relationship between our two Countries is very strong. I have therefore agreed to delay U.S. tariff hikes. Let’s see what happens?” “If a deal is made with China, our great American Farmers will be treated better than they have ever been treated before!”

Trump decided to delay new tariffs on USD 200B of Chinese imports beyond March 1. For now, there is no information on how long that would that be postponed. A spokeswoman for the U.S. Trade Representative’s Office said the agency had no announcements at this time beyond the president’s remarks.

Separately, Trump has left for a summit with North Korean leader Kim Jong-un in Vietnam. An initial one-on-one meeting is scheduled for Wednesday, followed by dinner with advisers.

Fed Clarida: US economy in a good place right now

Fed Vice Chair Richard Clarida attended a Dallas Fed event on Global Perspectives, with Dallas Fed President Robert Kaplan. There Clarida said that “the U.S. economy is in a good place right now….It’s a good situation to be in, and we really want to do whatever we can to help support and maintain the economy.”

Clarida also noted that slowdown in Asia and Europe are “definitely a relevant factor” to Fed policy. Since other central banks are still having interest rates stuck in crisis-fighting mode, “that obviously, on balance, makes the global economy more fragile.” He also tried to talk down the implication of yield curve inversion. He said “you can’t be handcuffed” to financial market signals . There are factors like global demand for US treasuries that pushes yields down at the long end.

Kaplan indicated that “you want to run maybe a little hotter, but you don’t want to go too far.” And, since “inflation is not running away from us”, Fed “might have the luxury of trying to do more to get more people into this workforce on a sustainable basis …”

BoJ Kuroda: Chinese economy to remain in doldrums in first half

BoJ Governor Haruhiko Kuroda told the parliament that China’s economy “slowed quite significantly in the latter half of last year”. And he predicts that it may “remain in the doldrums in the first half of this year.” Nevertheless, Kuroda expects Chinese even economy to “pick up thereafter, as authorities have taken fiscal and monetary stimulative action.”

Domestically, Kuroda expected that the net burden on households from this year’s scheduled sales tax hike to be smaller than previous hike in 2014. And he added that BOJ will be watching the impact of the sales tax hike on the economy. The impact could change depending on consumer sentiment, job and income conditions at that time.

Looking ahead

BoE inflation report hearings in the parliament will be the main focus in European session. Fed Chair Jerome Powell’s Congressional Testimony will be the next main event in US session. On the data front, UK will release BBA mortgage approvals. US will release housing starts and building permits, house price indices and consumer confidence.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.3055; (P) 1.3085; (R1) 1.3128; More….

GBP/USD’s rise from 1.2773 resumed by taking out 1.3109 and reaches as high as 1.3148 so far. Intraday bias is back on the upside with focus on 1.3174/3217 resistance zone. Decisive break there will complete a head and shoulder bottom pattern (ls: 1.2661, h: 1.2391, rs: 1.2773). That would indicate bullish reversal for 61.8% retracement of 1.4376 to 1.2391 at 1.3618 next. On the downside, break of 1.2968 minor support will turn bias back to the downside for 1.2773 instead.

In the bigger picture, focus is back on 1.3174 resistance with current rebound. Sustained break will indicate completion of decline from 1.4376. Rise from 1.2391 would then be seen as the third leg of the corrective pattern from 1.1946 (2016 low). In that case, further rise could be seen through 1.4376 resistance. Nevertheless, rejection by 1.3174 again will extend the decline from 1.4376 through 1.2391 to 1.1946 low.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
07:00 EUR German GfK Consumer Confidence Mar 10.8 10.8
09:30 GBP BBA Loans for House Purchase Jan 39.2K 38.8K
10:00 GBP BoE Inflation Report Hearings
13:30 USD Housing Starts Dec 1.25M 1.26M
13:30 USD Building Permits Dec 1.29M 1.32M
14:00 USD House Price Index M/M Dec 0.40% 0.40%
14:00 USD S&P/Case-Shiller Composite-20 Y/Y Dec 4.90% 4.70%
15:00 USD Consumer Confidence Feb 124.1 120.2
15:00 USD Fed Powell testifies Before Senate Banking Panel

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