The failure of Boris Johnson to get a Brexit deal approved over the weekend led to a mild sell-off in GBP against other G10 currencies.
The positive side is that the delay of a vote and postponement of the Brexit deadline to 31 January 2020 prevented an immediate no-deal Brexit, thus helping to cushion the downside of a currency fall. This issue is far from being resolved, but a temporary relief is welcomed by investors.
Technically, the GBP has retraced from a recent high of 1.2980 and saw its immediate support level at 23.6% Fibonacci retracement at 1.2800, followed by 38.2% at 1.2684. Momentum indicator RSI suggest the currency has been temporarily overbought recently, and profit-taking is necessary.
The offshore renminbi CNH strengthened against the greenback to 7.066 area this morning, backed by news that the phase 1 trade deal made good progress. As USD/CNH is a delicate indicator for market sentiment, the strengthening of the CNH might buoy risk assets performance on Monday. Major Asian equity futures are posited to open higher.
Weakness in crude oil and metal prices reflected a bearish view on the demand side as the global economy slowdown shows no sign of ending anytime soon. There is also rising expectations for a Fed cut in October, with the futures market now pricing in a 92% probability of a dovish move in the FOMC meeting next Wednesday. As a result, the dollar’s weakness might lift the performance of emerging market currencies and assets, which have largely underperformed in developed markets this year.
Gold price is unchanged from last Friday’s closing at US$ 1,490 reflecting investors’ insensitivity toward Brexit news. Technically, gold price has been consolidating at around a tight range between $1,470-1,500, trying to strike a balance between loose monetary policy and eased trade tensions.
Here is a list of key events for this week:
- Monday: Japan trade balance
- Tuesday: US Home Sales
- Wednesday: EU Consumer Confidence, US Crude inventory
- Thursday: Eurozone flash manufacturing PMIs, ECB rate decision, US durable goods, US unemployment claim, US new home sales
- Friday: US consumer sentiment
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