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Forexlive Americas FX news wrap: PM May tries a new Brexit deal, but without much luck

Forex news for your trading on May 21, 2019

In other markets, the snapshot of levels are showing:

  • spot gold, $-3.26 or -0.26% $1274.59
  • WTI crude oil futures settle at $62.99 for the June contract. That is down $.11 or -0.17%. The June contract expires today. Tomorrow the July contract will be the active contract

US stocks took there clue shortly after the close last night, when the US eased some restrictions for Huawei. That turned sellers into buyers. The major indices in Europe and US all traded in the black for most of the day (or at least all closed with positive gains).  The below chart shows the low to high % changes and the closing % changes for the major European and NA indices.

  

In the US debt market today, the yields moved higher on less “risk off’ pressure.

US yields end the day higher on risk on flows

The focus in the markets today were on PM May’s new Brexit plan, and headlines associate with it.  

The GBP pairs did enjoy a temporary sharp run up after headlines saying PM May poised to offer MP a vote on a second referendum.  The GBPUSD moved up to a high of 1.2813 but then other details started to leak out 

  • 2nd referendum is conditional that the withdrawal agreement Bill passes at the 1st stage
  • May proposed a free vote on a 2nd referendum and sparked a massive backlash from Pro-Brexit ministers
  • May was prepared to put 2nd referendum and customs on the face of the withdrawal amendment Bill, but backed down when Andrea Leadom, Chris Grayling, Geoffrey Cos, and then some others totally called the idea totally unacceptable 

The price rise started to leak oil on the uncertainty.  May then gave her speech were she outlined a 10 step deal including:

  1. Finding an alternative arrangement for the Irish backstop
  2. Promise to keep Northern Ireland aligned
  3. A provision that all MP’s would give their approval
  4. A promise the new deal would guarantee workers rights would not lag behind those inthe EU
  5. A guarantee that environmental protection standards will not dip below the EU
  6. a promise to seek as close to frictionless trade in goods with EU as possible while outside the single market and ending free movement
  7. the pledge to match EU rules for goods and agri-food products that might otherwise face border checks, avoiding delays for business
  8. MPs would be allowed to decide on post-Brexit customs arrangements
  9. A guarantee of a House of Commons vote on whether the final deal should be subject to a confirmatory referendum (the first deal had to pass though)
  10. A legal duty to secure the necessary changes to the political declaration added to the deal with the EU to reflect the changes

As the ministers mulled over the details, Labour said they would reject the deal. Brexiteers did not like it.  Overall, Buzzfeed did a poll and found 51 Tory MPs were against the deal and 17 Tory MPs who voted for the last deal, would not support this new deal.  

Those are not good numbers and certainly, the new deal is heading for defeat, with PM May likely looking at little alternative but to resign early.

For the GBPUSD, it gave back the gains on the day, and are ending the session lower and near the 1.2700 level (the pair closed yesterday at 1.2722).  The only bright spot is the GBPUSD did NOT reach the earlier session lows at 1.26846.  Overall, however, it wasn’t a great day for PM May (and the GBP) as defeat was snatched from the temporary jaws of victory.   

Having said that, although the GBP pairs are ending well off session highs some of the pairs are actuallly higher on the day. GBPJPY, GBPCHF, GBPNZD and GBPAUD is higher, but the gains had more to do with the weakess of the currencies like the AUD and NZD.

The ranges for the major currency pairs

In fact, the AUD and NZD ended lower on the day (see the rankings of the strongest to weakest in the chart below), helped by the more dovish comments from RBA’s Lowe, who gave traders increasing hope for a cut in rates in Australia at the June 4 meeting.  

His comments helped pressure both the AUD and NZD throughout the day. In fact, the NZD was the weakest currency of the day (see chart below). The AUD was the 3rd weakest of the majors.  

In New Zealand, retail sales for the 1Q will be released in the new trading day. Be aware. 

The winners and losers in the currency market today.

Another currency weaker today was the JPY which saw traders exit “risk-off” trades (the JPY tends to rally in times of stock market weakness and fall when stocks rise).   

The USDJPY moved from a low early in the session at 109.99 to a high at 110.66.  The price moved above its 100 day MA in the process at 110.49.  However, a late day profit taking move, has taken the price back down toward that key 100 day MA. It will be a barometer for the bulls and bears in the new trading day.   

Finally, the market got some comments from Fed’s Rosengren and Evans today that were of interest.

Fed’s Rosengren had lots to say (HERE and HERE), but this one caught my eye: 
  • We are getting much closer to where the balance sheet might need to expand

Fed’s Evan spoke about letting the economy run hot by saying:

  • Fed must follow through if we say will go over 2% inflation
  • Inflation makeup strategies could require short run price increases well above 2%. That raises possible issues of whether Fed will be believed to follow through

Those types of comments are good news for stock bulls (a more accomodative Fed), but who knows how the trade war winds with China will blow in the new trading day.   

Wishing you good fortune in your trading.

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