Forecast - Brexit, ECB, China GDP and Other Major Themes
- The return of focus to Brexit happened earlier than expected as anticipation for UK PM May's speech led to a Pound gap
- China 4Q GDP may be the market's top, single event risk but its market impact is likely limited as it rarely surprises
- US CPI stats and Fed speak will revive Fed speculation, while the ECB's policy decision will spell out an extreme dove
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The coming week is facing a range of high profile event risk that can do more than generate severe bouts of volatility. With the proper application of surprise, a range of key fundamental trends can be rekindled. Focus on the UK's Brexit was already due to be the first major charge with UK Prime Minister Theresa May due to deliver the government's priorities in the forthcoming negotiations with the EU on Tuesday. Yet, the impact it would have on the market was triggered early when the highlights of her speech were reportedly leaked to the media and they duly relayed them to the market. There is still pent up pressure behind this speech and data (CPI and jobs), so FX traders should keep a weathered eye with Cable at its lowest close in over three decades.
As the week wears on, the Euro will see vague, distant fundamental concern turn very lucid. The Brexit holds serious existential risks for the shared currency, but the practiced sense of pushing such threats to the backdrop has afforded the currency some blissful ignorance. That said, the ECB rate decision on Thursday will not allow for such complacency. While the central bank is unlikely to change its policy bearings, it is a clear reminder as to the ineffectiveness of their current program and can more clearly define the limits of the central banks available stock of purchases.
Through the end of the week, the Chinese 4Q GDP update seems to deliver a decisive catalyst while the US Presidential inauguration seems as distinct from a clear market mover as they come. However, they are both comprehensive and big-picture in nature. For the Chinese growth update, meaningful 'misses' in the data relative to expectations are suspiciously rare. For the US changing of the guard, there is little chance that meaningful policy will interfere with ceremony. Yet, both speak to arguably the most important relationship in the global financial system. As the two face a growing fight over trade, the entire world looks to suffer. We discuss some of the most important themes in the entire FX market and how they are attached to key data in the recording of this week's Weekly Fundamental Webinar.
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