– The British Pound continues to advance on hopes that the UK will get a greater deal from the EU – in any other case, Brexit can be prevented altogether.
– An absence of great US financial information means merchants have stopped listening to the truth that the US economic system was slowing down by the top of This autumn’18.
– Retail merchants are fading short-term strikes, with Euro longs rising and British Pound longs lowering.
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The US Greenback (by way of the DXY Index) continues to push larger, albeit solely modestly, as consideration continues to stay on the unfolding political drama in Europe. Whereas the third week of the month usually brings with it a slew of vital financial information releases, with the US authorities shutdown, most of the businesses that report financial information have shuttered their doorways in the intervening time. Consequently, the US financial calendar has been considerably scaled again, with the overwhelming majority of information releases over the previous two weeks having been canceled.
Has the US Authorities Shutdown Been Bullish USD?
No information could also be excellent news for the US Greenback. The US economic system was slowing down by the top of This autumn’18 (Citi Financial Shock Index turning decrease, ISM and PMI surveys falling again in direction of 50), besieged by tighter Fed financial coverage and the US-China commerce conflict. With none new information releases, merchants have little cause to regulate their views on the Fed or the US economic system for 2019.
In opposition to the backdrop of rising political considerations in Europe and a Brexit course of that has seemingly been derailed, the US Greenback has been in a position to climate a tumultuous begin to 2019. How lengthy the greenback updraft continues is one other query: the US economic system is shedding -Zero.13% per week throughout the US authorities shutdown, a tempo that can solely enhance as time presses ahead (the affect doesn’t progress linearly, it compounds).
If US President Trump and Congressional Democrats are as entrenched as they seem, the shutdown may find yourself zeroing out development in Q1’19 – a growth that will surely have profound penalties for the Fed’s fee hike path this yr.
Brexit Newest: Delusions
Think about this: a rustic’s prime minister is handed the worst parliamentary defeat in that nation’s historical past, after which the prime minister’s supporters believed that the consequence strengthened stated prime minister’s leverage in worldwide arenas. You’d say to your self, “that’s delusional!”
And but, right here we’re with Brexit: UK PM Theresa Might is coming off of the worst defeat in parliamentary historical past, and for some cause, merchants are appearing as if this strengthens her negotiating hand with Brussels. Let’s be clear: the EU is underneath no obligation to resolve the UK’s home political squabbles, simply as French President Emmanuel Macron stated yesterday. In terms of the Irish border situation, the EU goes to facet with Eire, not the UK – it doesn’t matter what. There’s little incentive for the EU to provide the UK a parachute right here; in any case, one of many targets of Brexit, from the EU’s perspective, is to make the method so onerous that it deters different international locations from attempting to depart (an act of self-preservation).
Accordingly, the Brexit course of has been winnowed down to a few outcomes: Might’s EU-UK deal (which was shot down 432-202); no deal (aka “laborious Brexit,” which nobody appears to need); or no Brexit in any respect. That there’s British Pound power persevering with to construct means that markets are leaning into choice three, ‘no Brexit.’
DXY Index Value Chart: Each day Timeframe (June 2018 to January 2019) (Chart 1)
The technical image has not modified prior to now 24-hours for the DXY Index, which remains to be again within the near-three-month consolidation above 95.65 vary assist. Value continues to reject makes an attempt to rise above the every day 21-EMA, having failed to date right now after failing on Tuesday and Wednesday. Concurrently, each every day MACD and Sluggish Stochastics have turned larger (albeit nonetheless in bearish territory). The shift to a impartial outlook for the US Greenback stays legitimate.
— Written by Christopher Vecchio, CFA, Senior Foreign money Strategist
To contact Christopher Vecchio, e-mail at firstname.lastname@example.org
Comply with him on Twitter at @CVecchioFX
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