Weekly Game Plan 6 Aug 18
GBP might be taken to the shed again this week after British trade minister Liam Fox said “intransigence” from the European Union was pushing Britain towards a no-deal Brexit, in an interview published on Saturday by the Sunday Times. The No-Deal Brexit seems to be a real possibility, which would throw more uncertainty into the picture, and weigh on BOE decisions.
Themes for the Week:
GBP weakness may continue based on the above drivers.
The US/China trade dispute continues after the US threatened to increase tariffs on 200 BLN USD worth of China imports from 10% to 25% while China said on Friday they were looking at increasing tariffs on 60 BLN USD worth of US imports. “Such methods of extreme blackmail will not bear fruit against China.” was the reply from Beijing. China will be in focus in the week ahead, as the market gauges reaction to the surprise PBOC decision to raise reserve requirements for FX settlements to 20%. China authorities hope the move will cap the USD/CNY and discourage outflows.
The Euro may also be under pressure as we get Italian Bank earnings this week. Last week BTPs were lower on the speculation that the new populist government might push the boundaries of EU rules regarding the next budget plan. The threat of a fresh financial market crisis in Italy has been weighing on the EUR and could start to alter ECB expectations.
Data in the Week Ahead:
- The RBA and RBNZ meet next week and both central banks are expected to remain on hold. The recent run of Australian data has been mostly positive and this might be acknowledged by the RBA.
- US CPI
- UK GDP
- CAD employment
What’s on the Radar:
Although the USD is gaining traction, we’re not yet clear of the recent range and as such, trading the crosses is probably a better solution for now.
Going into the week I like GBP and EUR weakness vs. AUD & CAD. There’s something going on in the JPYs also, but not as evident. SP500 seems poised for further gains.
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