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GBP
Expect more Brexit guidance today as the outcome of this week’s negotiations are made known.
The principals of the negotiations – Michel Barnier and Dominic Raab – are due to meet to discuss progress, and their interviews could well set the tone for Sterling into the weekend.
However, news that Prime Minister Theresa May is taking direct control over negotiations means we are unsure whether it will be Raab, May or the PM’s main Brexit advisor Olly Robbins in attendance.
We note that May’s decision to take a more direct approach to negotiations is seen to be GBP-positive, and her attendance of the meeting could forward this theme.
The Northern Ireland border was once again the focus of the talks confirming just how much this one issue has dominated proceedings and sucked up vast amounts of energy and delivered so much angst.
If the issue can be put to bed be under doubt that the Pound will rally.
Whether today is the day we get a sign that it has been solved is however doubtful.
USD
The US and EU agreed to take steps towards freer bilateral trade between the two nations ensuring a potentially major stumbling block for the EUR/USD has been navigated.
A joint statement from US President Trump and EU Commission President Jean-Claude Juncker showed an agreement to pursue zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods. The sides will also work to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products, as well as soybeans.
The market impact has been rather lacklustre, but then again, one is left wondering what the outcome would have been if both sides had not come to agreement. “For risky assets, averting an imminent global trade war was probably the best possible outcome that the Trump-Juncker showdown could deliver,” says Viraj Patel, a foreign exchange analyst with ING Bank N.V.
Patel reminds us the US dollar had been the big winner of the Trade War Trap that has been plaguing global markets in 2018 “so it’s not all too surprising to see the currency lower across the board on the back of easing global trade war risks.”
ING say that in the absence of a notable escalation on market fears stemming from the trade war, the Dollar will likely struggle from here:
“This is merely the icing on the cake when it comes to our call that the USD rally has topped out; fading positive US data surprises, the markets’ extreme switch from short to long USD positions, the fizzling rally in short-term US rates and the President’s jawboning were already good enough reasons to see the USD rally briefly turn on its head.”
EUR
The Euro is supported in the wake of the EU-US trade outcome.
The big event to watch is the outcome of the European Central Bank’s July Meeting, with the decision scheduled for announcement at 12:45 B.S.T.
No changes are expected, therefore it is the press conference at 13:30 B.S.T. that will likely offer more interest to traders.
Analysts reckon believe that with little new developments since last month, the ECB chief will resort to reiterating the key messages of the June meeting – especially the prior forward guidance that interest rates will stay unchanged ‘at least through the summer of 2019’.
ING say there may be some pressure on the ECB clarify the meaning of ‘summer’ – “yet it’s worth noting that the clever wording here gives policymakers the necessary flexibility to adjust policy rates as and when the economic data dictates,” says Patel.
ECB events often serve up volatility, however because there is very little expected of today’s event, any volatility is expected to have a limited shelf life.
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