GBP up Before Brexit Storm, EUR Resilient, AUD Underperforms - US Market Open
GBP: Ahead of the crucial Brexit vote tomorrow evening, GBP is slightly firmer this morning. While it is expected that PM May’s deal will be rejected, the question will be, by how much and what happens next. So far, the expectation is that PM May will lose by over 100 votes (320 votes needed) and in regard to what happens next, this has ranged from the possibility of a second referendum to a general election. Consequently, 1-week implied option volatility points to a 200pip break-even straddle. Today’s gains in GBP has largely stemmed from PM May’s speech in which she highlighted the most likely outcome if her deal is not passed is no Brexit at all, as opposed to a no-deal Brexit.
EUR: EZ data continues to deteriorate with the latest industrial production figures printing a sizable drop, consequently, stoking technical recession fears. While today’s reading is not entirely surprising given last week’s German and French figures, the Euro remains stubbornly resilient to soft data prints nonetheless. The Euro has been provided with some support following the policy shift in the Fed’s thinking in which the US-DE 2yr spread have continued to bounce back, now at -313bps from -360bps in November.
AUD: The Aussie is underperforming this morning following poor China trade data. The latest data showed a surprise fall in Chinese imports of 7.6% vs. expectations of a 5% gain, while exports had dropped 4.4%, missing estimates of a 3% rise. Consequently, fears of a Chinese slowdown have resurfaced with the US-China trade dispute adding to the downside risks that the Chinese economy is facing. (For technical report, click here)
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--- Written by Justin McQueen, Market Analyst
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