Forex Market Trading – Here is what you need to know on Friday, September 11
The European Union has set an end of September deadline for the UK government to withdraw the Internal Market Bill’s offending parts.
Of course, the UK will not do this. They will publish their own legal opinion, contradict the EU legal opinion. So, on and so on. So this means legal loggerheads for the next few weeks, and the negotiations are on hold.
Troubling to see how this is resolved without another U-turn from Boris Johnson, and of course, the EU will not blink, because it’s the rule of law – and that, of course, is unimpeachable.
Brexit negotiations are further scope to undermine GBPUSD towards 1.25 over the next month, while short-dated risk reversals are increasingly favouring puts. Brinkmanship or not, the next few weeks will more clearly reveal whether a no-deal outcome is increasingly set.
The EUR/USD remains in a broader holding pattern, consolidating between 1.1700 and 1.2000. Given the European Central Bank’s (ECB) focus on the Euro’s impact on inflation expectations and US Fed Vice Chair Clarida’s September FOMC bazooka walk back, the street should look to fade strength into 1.1880/90.
Next week’s Federal Open Market Committee (FOMC) meeting will be a significant one for the ECB. And there is a chance the Fed’s strengthen forward guidance and a maturity shift in QE purchases given the latest equity market rout.
But I don’t think they will and save the big guns for when needed. I’m taking my lead from the ECB and Bank of Canada (BoC) that both sounded more upbeat than expected. The BoC is a particularly good sounding board. It’s only the RBNZ that is bringing out the dovish waxing kit.
If I were ECB President Lagarde, I would be cheerleading an FOMC pause, which also seems reasonable given that the policy framework is a “whites-of-the-eyes’ approach in terms of inflation”.
The Feds won’t hike rates until inflation is at or above 2.25 %. which is a policy built for the future, not around what is happening today.
Has gold hit bottom?
Gold seems to have set a bottom and is still trading with a high correlation to US equities.
I expect interest and volatility to fade a bit, as there has been a fair amount of hyperactivity in the past month. I still think we test $1910 next week as the markets get spooked by positive vaccine news and a not-so-dovish September FOMC. Flow-wise, there is extraordinarily little buying interest from real money accounts and some tentative selling from fast money.
Forex Market Trading