– Weak German ZEW knowledge coupled with extra hopes of avoiding a no deal, ‘laborious Brexit’ end result have led the Euro decrease and the British Pound increased on Tuesday.
– The US authorities shutdown has entered day 32, and no finish is in sight as neither US President Trump nor Congressional Democrats seem keen to budge from their entrenched calls for.
– Retail merchants are fading the US Greenback rally extra aggressively, suggesting that it could nonetheless have legs but.
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The US Greenback (by way of the DXY Index) continues to nudge increased on the primary full buying and selling day of the week, with merchants persevering with to downplay the affect of the US authorities shutdown on the financial system (“no information is nice information”), even because the shutdown drags into day 32. However with the US-China commerce negotiations ongoing, geopolitics starting to rear its head once more, Brexit reaching a boiling level, and political instability slowing creeping throughout Europe, the US Greenback is solely having fun with its place as ‘the least worst possibility.’
The Form of Brexit
UK Prime Minister Theresa Might has offered her ‘Brexit Plan B’ to parliament and reactions have been tepid at finest. It appears that evidently the prime minister’s renewed effort to get her deal via the Home of Commons differs little than her first try, and by judging from the response of parliamentarians, it appears uncertain that ‘Plan B’ will cross muster both if a vote is held by the January 29 deadline. Stories over the weekend indicated that UK PM Might may try and renegotiate the Good Friday Settlement, a politically fraught endeavor that might undoubtedly add a brand new matrix of complexity to an already overbearing Brexit downside.
At this level, if a no deal, ‘laborious Brexit’ is to be prevented, it might seem that an extension past the March 29, 2019 deadline could also be essential. Nevertheless, with the European parliamentary elections due up in July, it’s uncertain any extension to the Brexit deadline would transcend there. Late on Monday, cross-party talks produced a invoice designed to thwart a no-deal, ‘laborious Brexit’ state of affairs by forcing PM Might to postpone Brexit if no deal had been reached by February 26.
Eurozone Knowledge Continues to Bitter; ECB on Thursday
Among the many solely essential financial knowledge due out on Tuesday, the January German ZEW Survey proved disappointing, with the Present Scenario coming in at +27.6 versus +43.three anticipated. The weakest studying in 4 years confirms the deterioration seen in proximal progress trackers just like the PMI surveys. Whereas a recession isn’t within the playing cards but, proof is beginning to construct that Germany, alongside the remainder of the Eurozone, is seeing progress prospects cool off.
Talking of PMIs, tomorrow, Wednesday, the preliminary January Eurozone Composite PMI is due in at 51.four from 51.1, a modest enchancment however nothing that ought to encourage a lot confidence. If something, given the backdrop of constant knowledge disappointments over the previous month (per the Eurozone Citi Financial Shock Index), the chance is for the PMI readings to disappoint.
On the finish of 2018, Eurozone financial knowledge was clearly weakening, a pattern that has continued up to now into the New Yr: the Citi Financial Shock Index continues to be deep within the crimson at -81.7, barely improved from -88.6 on the finish of final week, however nonetheless decrease than the place it was one month in the past at -77.5. This can be a dour backdrop for ECB President Mario Draghi and the Governing Council once they announce their January price choice on Thursday.
DXY Index Worth Chart: Each day Timeframe (June 2018 to January 2019) (Chart 1)
Following the vacation, the total begin of the week see the DXY Index sustaining elevation above the downtrend from the December 14 and January 2 highs.Per the shut on the finish of final week, worth is above the whole lot of its each day Eight-, 13-, and 21-EMA envelope for the primary time since December 26; the shut on Friday via the each day Eight-EMA got here after having failed so after failing on Tuesday, Wednesday, and Thursday. Each each day MACD and Sluggish Stochastics are urgent excessive increased (albeit nonetheless in bearish territory).
To retake the rising trendline from the April and September 2018 lows, the DXY Index would wish to get again above 97.30 by the tip of the approaching week. To this finish, extra worth improvement is required to improve the evaluation to totally ‘bullish,’ though little doubt the US Greenback’s near-term technical prospects have seemingly brightened.
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— Written by Christopher Vecchio, CFA, Senior Forex Strategist
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