Daily Commentary | 14/03/2019
Pound rallies as UK Parliament rejects no deal Brexit
The UK Parliament rejected a no deal Brexit yesterday evening and the pound rallied as the danger of a hard Brexit was taken off the table. Market focus now turns to tonight’s vote, when the UK Parliament is to decide whether the UK should ask for an extension of the Brexit date and by how long. Our base scenario remains that the UK Parliament will vote in favor of an extension and analysts expect the extension to be of a few months. A possible delay of the Brexit date, which is currently set for the 29th of March, could open a number of possible new scenarios, including a free trade deal, or a second referendum. Also it should be noted that Theresa May’s influence over her own party’s MPs seems to weaken, which could lead to further turbulence in the UK political stage. On the other hand, we would not be surprised to see the EU hardening its stance and exercising pressure on the UK. Also please be advised that some media and analysts mentioned the possibility of Theresa May preparing a third meaningful vote for the UK Parliament. Should that be the case, it could imply that the UK government is discounting the possibility of any negotiations to fail, or is counting on a hard stance from the EU. We expect volatility to continue for the GBP and should the UK Parliament vote in favor of delaying the Brexit date, we could see the pound strengthening even further. On the other hand any hardening of the EU stance could weaken the pound. Cable rallied yesterday breaking all of our resistance lines, even at some point nearing the 1.3400 level, yet corrected lower during today’s Asian session and landed below the 1.3265 (R1) resistance line. We could see the pound strengthening further today, pushing the pair even higher, should there be signs that the UK Parliament is about to approve (or actually approves) a possible delay of the Brexit date. Should the bulls maintain control of the pair’s direction, we could see cable, breaking the 1.3265 (R1) resistance line and aiming if not breaking the 1.3350 (R2) resistance level. Should the bears take over, we could see the pair breaking the 1.3175 (S1) support line and aim if not break the 1.3070 (S2) support level.
BoJ interest rate decision
Tomorrow during the Asian session (03:00 GMT), BoJ’s interest rate decision is due out and the bank is expected to remain on hold at -0.10%. Currently JPY OIS imply a probability of 93.24% for such a scenario, hence market focus could shift to the accompanying statement. We do not expect there to be substantial changes in policy, albeit the recent acceleration of the GDP growth rate and the low unemployment, could provide for some hopes about inflationary pressures in the Japanese economy. On the other hand, recent statements made by Governor Kuroda and other BoJ officials had a more dovish tone, which could be reflected in the accompanying statement and the following press conference (≈06:30,GMT). Should the dovish elements prevail in either occasion (accompanying statement, press conference) we could see JPY weakening. USD/JPY maintained a sideways motion yesterday, continuously testing and finally breaking (albeit not clearly) the 111.40 (S1) resistance line (now turned to support). We expect the pair to maintain a sideways movement, yet the pair is expected to be sensitive in regards to BoJ’s interest rate decision and the following press conference of BoJ governor Kuroda. Should there be a clearly dovish tone by the BoJ, we could see the pair rising and in such a case the pair could aim, if not break the 112.55 (R1) resistance line. On the other hand should the pair come under the selling interest of the market, we could see the pair breaking the 111.40 (S1) support line and aim for the 110.15 (S2) support barrier. Also please be advised that the pair could also prove sensitive to any further developments of the US-Sino trade relationships.
Today’s other economic highlights
In today’s European session we get Germany’s and France’s final HICP rates for February and in the European session we get from the US the number of US Eurozone’s industrial production growth rate for January. In the American session we get from the US, the number of new home sales for January. Please bear in mind that OPEC’s monthly oil market report is due out today and should there be any indications that OPEC is about to cut production levels substantially, oil prices could strengthen.
• Support: 1.3175 (S1), 1.3070 (S2), 1.2990 (S3)
•Resistance: 1.3265 (R1), 1.3350 (R2), 1.3450 (R3)
• Support: 111.40 (S1), 110.15 (S2), 1109.20 (S3)
•Resistance: 112.55 (R1), 113.70 (R2), 114.50 (R3)