Forex news from the European morning session - 15 November 2018
Headlines:
- UK PM May: What we agreed yesterday was not the final deal
- Junior Brexit minister Braverman resigns
- Eurozone September trade balance €13.4 billion vs €16.3 billion expected
- Brexit: Esther McVey resigns
- UK October retail sales -0.5% vs +0.2% m/m expected
- BOE rate hike in 2019 has been priced out
- Raab's resignation triggering sharp reaction in UK markets
- Dominic Raab has resigned as UK Brexit secertary
- UK Northern Ireland minister is said to have quit government
- DUP's Shannon says party will certainly vote against May's Brexit deal
- China says that high-level trade talks on trade with US have resumed
- EU's Tusk: To endorse Brexit deal to take place on 25 November
- Barnier: Brexit agreement is fair and balanced
- Pence: No meeting with Chinese officials on the agenda at the moment
Markets:
- AUD leads, GBP lags
- European equities mostly lower, E-minis flat
- US 10-year yields down 2.4 bps to 3.101%
- Gold up 0.03% to $1,211.18
- WTI down 0.34% to $56.06
- Bitcoin down 2.7% to $5,402
Brexit, Brexit, Brexit.
The session started off with tepid tones as the dollar was a little weaker across the board while the aussie led following a solid labour market report in Asian trading. Equities were flat for the most part early on but bounced higher during the session only for Brexit worries to place a roadblock in its path.
Things started with DUP pledging to vote against May and that sent cable down from 1.3020 to 1.2980 levels. That was followed by a ministerial resignation that prompted the pound to move lower to 1.2950. But the big name was dropped thereafter as Dominic Raab resigned as Brexit secretary, prompting a massive wave of uncertainty across markets. The pound plunged as Gilt yields also tumbled with cable falling to 1.2870 before further resignations and threat of a leadership challenge sent it crashing to a low of 1.2751.
There's a bit of a recovery now as Theresa May speaks in parliament but the damage has evidently been done. Cable now trades near 1.2800 heading into US trading.
The move lower in the pound also brought about a lower euro but EUR/GBP bids helped to keep the single currency afloat for the most part. EUR/USD traded around 1.1320-50 for most of the session but then sank to 1.1271 after Raab's resignation. The pair is now making its way back to the 1.1300 handle as we move into the next session.
Apart from that, risk was also hit by the negative news from the Brexit saga with yen pairs falling after Raab's resignation prompted a wave of buying in bonds. Treasury yields fell and that brought USD/JPY from 113.50 to a low of 113.30 before now settling around 113.40 levels.
As a result, equities also pared earlier gains and the aussie also gave back some of its positive momentum earlier in the day. The aussie remains the best performing major currency after the positive data beat in Asian trading with AUD/USD running from 0.7270 to a high of 0.7298 when risk bounced higher mid-way through the session before falling to 0.7270 again now with focus being on Brexit as risk sentiment is tempered a little.
It's still all about Brexit now and it's going to be tough for the pound to recover from this unless Theresa May pulls off a miracle. But it's looking more and more likely that she will fail in her bid to get the Brexit deal approved by parliament unless she manages to convince European officials to make concessions to the Irish backstop.
Expect more ministerial resignations to come and further scrutiny on May's position as prime minister in the session ahead.
