Key points This week
As with last week, the standout performer over the week has been the British Pound which has seen strong gains on increased optimism over a potential Brexit deal. The Japanese Yen has been the weakest currency of the G10 bloc this week as better risk appetite has seen a lack of safe-haven demand sapping JPY upside.
US-Sino Trade Deal: Not Done Yet
Traders remain frustrated by the lack of clarity over the recently announced “phase one” trade deal. On the back of two days of talks between US and Chinese officials in Washington on October 10th, the US announced that a deal had been agreed. However, the deal is yet to be signed and China is reportedly unhappy with some of the details of the agreement. As yet, the deal remains to be signed with the US pushing for Trump and Xi to sign the deal at the APEC meeting in November.
Brexit Deal Agreed – But yet To Pass Parliament
On Thursday GBP was seen higher on news that the UK and EU had agreed a Brexit deal. However, the DUP party of Northern Ireland has said that it is against the current deal. As the DUP forms the coalition government with the Conservative party, without its support there is a high risk that the deal will fail to achieve parliamentary approval. If this is the case, the market will wait to hear how the government will proceed, essentially whether Johnson will ask for an extension or attempt to press ahead with a no-deal Brexit
US Data Worsens
There was no respite for US data this week which saw an underwhelming September retail sales print. At ….., the reading was at its lowest level for seven months, highlighting the ongoing deterioration within US economic activity. This continues the recent run of weaker-than-expected data and ahs seen market pricing for an October rate cut increasing, putting downward pressure on USD.
IMF Cuts World Growth Forecasts
The IMF announced another downgrade to its world economic outlook this week. The IMF is projecting world growth to register just 3% this year, marking a -0.2% downward revision from its July forecasts. Citing the damaging impact of the ongoing trade war, the group IMF ha also warned that a reading of 2.5% would mark a global recession. Looking ahead, however, the group expects world growth to rebound in 2020.
Key Events Next Week
Eurozone & US PMIs
The market will receive the next round of PMI data sets from the Eurozone and US next week. These readings have been trending lower recently with manufacturing readings from both economies hitting cycle lows last month. Traders will now be looking to see if there has been any recovery or if the trend has worsened.
ECB Rate Decision
The ECB is not expected to announce any further easing at this meeting though the market will be keen to hear the bank’s latest assessment and see if there is any change to the forward guidance. Minutes from the last meeting highlighted the high level of division among ECB members and traders will be looking to see if the bank strikes a more unified tone this time around or if divisions remain.
Keep An Eye On
UK Parliament Brexit Decision
Following the EU approving Johnson’s deal at the EU Summit this week, the market will now wait to hear the outcome of Saturday’s parliamentary vote. Given that the EU has said it will not grant any further extension the odds are in favour of parliament backing the deal. However, should parliament turn the deal down, leaving a no-deal Brexit as the only outcome, this would be strongly negative for the pound.
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High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% and 71% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!