Politics dominated the headlines over the weekend, the takeaway interview with Dominic Raab who stated the government could ‘test to the limit’ the anti no-deal legislation that should be enacted into law today. Foreign Secretary, Raab said the government would be prepared to go to court, to challenge the law that forces Johnson to request an extension to Article 50, if he is unable to bring back a new deal by October 19th.
Boris Johnson has already reiterated that he would rather be ‘dead in a ditch’ than go ‘begging’ for an extension. This continues to follow his do or die method on forcing through Brexit by Halloween. Johnson was dealt another blow over the weekend when work and pension secretary, Amber Rudd quit from her cabinet position. On departure she said that the government was having no ‘formal negotiations’ with the EU regarding a new deal, instead the majority of the time was being spent preparing for an ‘inferior’ no deal-option.
It is important to note that an extension is not something that Europe is particularly keen on. French foreign minister, Jean-Yves Le Drain said that the EU was not prepared to keep extending the deadline every three months, with Guy Verhofstadt, the European Parliament’s Brexit co-ordinator going further stating that ‘yet another extension for Brexit is unacceptable, unless the deadlock is broken’. Politics will continue to be the main driver on FX rates and we could continue to see wild swings either way as traders attempt to make sense of the shifting landscape.
Last week saw the pound moving around significantly with the market dropping to a yearly low well into the 1.19’s, early on in the week markets priced in a worst case Brexit scenario, which saw the pound sell off. This Pound weakness only lasted a short period as Boris Johnson was defeated on his first no deal legislation. Later on in the week we saw Parliament passing an anti-no deal Brexit bill, which effectively forces the Prime Minister to seek an extension to Brexit should a deal not be reached. This passing of this legislation saw GBPUSD trade above 1.23, reaching as high as 1.2350. Since then we have dropped back below 1.23 as traders try to work out whether or not Boris Johnson will be able to enforce his no deal Brexit.
In the build up to the 31st of October the one thing that remains certain is we will continue to see a significant amount of volatility.
1.11 is a key support level on GBPEUR, it has been trading between 1.09 and 1.1140, the pair has not as volatile as GBPUSD. This could be as there continues to be weakness in the Euro. The weakness in the Euro appears to be coming from two separate places. Firstly, German data last month came out significantly weaker than expected and has raised fears that there is a significant slowdown coming in the Eurozone and secondly, Brexit uncertainty continues to add pressure on the Euro.
Depending on budgeted rates the current level on GBPEUR is an interesting one, last month we were as low as the 1.07s so there could opportunities for importers at these levels.
EUR/USD is currently trading around 1.1030 with a key support level at the psychological level of 1.10. We have seen the pair move higher from the yearly lows of 1.0922 as US Non-Farm Payroll (employment) figures came out weaker than expected on Friday. This week the market will be awaiting the ECB monetary policy meeting on Thursday for guidance on the pair. Many market analysts predicting further stimulus or another cut in interest rates, which could see the Euro slide back towards the yearly lows or even further.
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