May’s Letter to EU
The main market-moving news on Wednesday was that the UK PM will formally request an extension of the Article 50 process by 3 months. GBP had been trading firmer in response to news last week that Brexit could be delayed. However, such a short extension might leave the market disappointed as uncertainty remains elevated. This should put pressure on GBP.
UK Inflation Modest
On the data front, UK CPI came in mixed. The headline figure exceeded expectations, while the core reading was lower than forecasts. The market is now keen to hear the BOE’s latest assessment tomorrow. Special attention will be paid to its views on the Article 50 extension and how this will affect the BOE’s monetary policy decision. 1.33 remains the key levels which bulls need to break to encourage further upside in the short term.
Euro Remains Somewhat Firm
Little in the way of data for the EU today leaves EUR trading off USD flows. The latter is a little firmer ahead of the FOMC meeting, keeping EURUSD little below yesterday’s 1.1361 highs. While the Fed is not expected to shift its stance in the near term, USD has been better supported today with equities coming off some.
Equities Off Recent Highs
Equities have traded lower in response to news of May requesting only a short extension. The market had been preparing itself for as much as a two-year extension. This would have put an end to Brexit uncertainty for a while. However, such a short extension merely delays the still, very real risk of a no deal Brexit. It is unlikely to offer enough time to actually resolve the remaining issues. The SPX500 is now retesting the 2820 support level from the last broken swing high in this bullish sequence.
Gold Gains Capped by Dollar
Despite the downtick in risk appetite today, gold prices have been a little softer as a stronger USD has capped any further upside at this stage. A reaffirmation today of the Fed’s view that rates will remain on hold over the coming months should create some upside room for gold, however, as the US Dollar is likely to be knocked lower again. 1311.27 remains the key level which bulls need to break. However, there are upside risks for USD. With recent data points surprising to the upside, should the Fed acknowledge any of this blue sky, we could see USD trading with a bid tone on the back of the meeting.
Yen Provides No Directional Bias
Yen remains fairly subdued here. The bias is still bearish for now, on the back of last week’s BOJ meeting where the central bank reaffirmed its commitment to maintaining an easing presence. Despite continued criticism over its stimulus, the BOJ warned against worsening global conditions and the need for negative rates to remain in place. Bulls will need to see USDJPY break 110.76 to see any shift in bias.
Aussie Rejected by $71c. Once More
AUD price action has ground to a near halt recently as a lack of volatility across the FX market has taken a toll on the high-beta pairs. AUD remains hemmed in by the bearish trend line from 2018 highs while the 0.7021 level continues to hold as support. On the upside, the exchange rates struggle to break beyond the 71 cent hurdle.