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Global Market Watch - 18th February 2019

The government had another defeat in Parliament last week, which now sets up a “high noon” vote on February 27th, when Parliament will yet again try to take a no-deal off the table. UK economic data has slowed down and helped sterling slide until Friday’s retail sales reported a nice bounce from last month’s 0.7% fall to a 1% rise. The important economic data for release this week is the average wage earnings on Tuesday, with the market expecting a quarterly reading of 3.5% from last month’s 3.4% and, if this is the case, it could support the pound. The market will now also start to price in the possibility of Brexit being delayed. Today, Brexit Secretary, Barclay, and attorney-general, Cox, will be in Brussels for talks, whilst Jean-Claude Juncker will meet Theresa May on Wednesday. The technical picture is suggesting the possibility of at least a short-term rally in sterling.  

Last week saw the euro slip against the dollar, as the respective economic paths diverge. However, the euro was unable to get through important support, even after ECB’s Villeroy said that the EU’s slowdown is “significant” and that the ECB could change its rate guidance. We have the important German ZEW economic sentiment release on Tuesday and expect a slight improvement from last month’s -15 to -14.1. This Friday could be important, as we see the final German GDP and Eurozone CPI figures. The market will also look out for any news on Italian and French relations, as well as any comments from the Italian government, as they prepare from the May EU elections. The market is very aware that Italy is back in recession, for the third time in 10 years, and needs economic reform. The Italian economy is 10 times the size of the Greek economy, so its performance is important to the euro.

Last week started with positive sentiment for the dollar, but this ended on Friday, as the dollar was sold off on technical trading and after San Francisco Fed President, Daly, said that she sees a good chance that the Fed will keep rates at current levels for the whole of 2019. For the week to come, today is Presidents’ Day bank holiday, and Wednesday sees the release of the latest FOMC meeting minutes. Durable goods are released on Thursday and Friday sees a host of Fed speakers. Two weeks ago, it appeared that USDSEK had moved higher and above important technical levels. In 2014, a similar move was a precursor to sustained dollar strength. However, last week USDSEK was unable to sustain this break higher, so caution must be urged on this bullish dollar scenario. US Chinese trade talks are making slow progress amidst positive sentiment from both sides. However, they are still facing the hurdle of forced technology transfers. March 1st is the deadline when more tariffs will be imposed on Chinese goods.

The AUD managed to recover on Friday, after being sold earlier in the week on trade concerns. Tuesday has the release of MPC meeting minutes, and the market will look for confirmation of the RBA’s now dovish view on interest rates. The CAD had a poor start to the week but managed to rally on Friday, as the oil price jumped above important resistance. Bank of Canada Governor, Poloz, speaks on Thursday, and Friday sees the release of retail sales.

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