Sterling – still no clarity, but market placing its chips on a breakthrough ahead of Thursday.
UK Boris Johnson continues to claim that he is ready to walk away from talks with the EU if a deal in principle is not reached by the October 15 (this Thursday) negotiation deadline he set months ago for the terms of the post-Brexit transition period relationship. After weekend talks between Johnson and France’s Macron and Germany’s Merkel, Johnson said that the EU will have to move on its position on fisheries. Top EU negotiator Michel Barnier and the UK’s David Frost are set to resume talks in Brussels today. The market continues to price sterling as if a breakthrough is more likely than not this week, but the situation will almost inevitably produce significant volatility in either direction depending on the outcomes around the Thursday deadline. The 1.3000 level in GBPUSD was crossed more due to USD weakness, while EURGBP has dithered below 0.9100 without approaching the more pivotal 0.9000 area. To get below there, we would likely need an agreement-in-principle headline this week.
The G-10 rundown
USD – the US dollar is on its back foot but the chief question is perhaps whether the market is really ready to doing anything dramatic on the greenback until we at least get to the other side of the election.
EUR – the positive risk sentiment in the US only echoed weakly into Europe and the positioning in US futures market is still extremely heavily long EUR – not the usual starting place for a major advance.
JPY – both eyes on US yields this week after the recent spike higher – JPY could stay resilient if this is a false signal and yields head back lower – EURJPY one way to get contrarian on that account. Actua
GBP – two-way risks this week as noted above on the UK’s October 15 deadline, though even a breakdown in talks doesn’t necessarily mean that no deal is possible before December 31.
CHF – the franc hanging in there below 1.0800 in EURCHF even as the weekly CHF sight deposits actually shrank slightly last week.
AUD – as noted above, the local technical key is the 0.7200 level in AUDUSD, while China moving against CNY appreciation could slow the prospects for upside, as could the uncertainty of the US election.
CAD – the USDCAD moving in sympathy with USD weakness and has some room left ahead of the giant 1.3000 chart level – have a hard time seeing a major new move ahead of the US election.
NZD – the RBNZ dusting off its negative rates talk still has AUDNZD above 1.0800, a pivotal level for differentiation with the relative NZD strength or weakness in the crosses.
SEK – the krona enjoying the risk sentiment surge, but is the momentum positive enough here in the EU economy to continue to drive a fall in EURSK all the way to the sub-10.25 lows again – doubtful tactically.
NOK – watching the price action in the pivotal 10.75-80 area in EURNOK as a recent oil recovery has helped reverse a good portion of the NOK’s steep decline from September, but we need more from oil and risk sentiment in Europe specifically to mount a challenge toward the 10.40 area cycle lows again.