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Weekly Game Plan 24 Sep 18

Over the weekend UK PM May said Britain would not flinch in an impasse with the EU on Brexit. “This is the moment to do what is right for Britain,” May said in the Sunday Express. The Sunday Times is reporting that the PM’s aides have begun contingency planning for a November snap election to help save Brexit talks and maintain her leadership. There seems to be more pain in store for GBP in the near-term.

Themes for the Week: 

Risk appetite continues unchalleneged after China refused to retaliate (for now) against Trump’s tariffs, and pledged to keep the Yuan stable and support their economy through fiscal and monetary means. Copper and AUD rallied, and the Dow made new all-time highs. Many analysts believe we will need fresh supportive news to keep this ball rolling. 

The FOMC will be the key event in the week ahead and will likely determine the direction of the USD and US Treasury yields. The market expects the FED to tighten policy amidst strong US data, especially wage inflation. This could kick US10YR yields past 3.13% (current year highs) which will put even more pressure on Emerging Market debt, beyond aiding the US dollar. October may very well be a tumultuos month for bonds if US yields break higher. The 10-year Treasury yield matters because it is the rate against which trillions of dollars of borrowing around the world are referenced. It touches every market in the world.

Keep an eye on the Euro and Italian BTPs. On Sep 27 the Italian Government needs to present it’s 2019 budget and it has been quite a roller-coaster ride. Right now, markets still are acting as if Tria will be able to remain within EU rules. But DiMaio and Salvini will likely stir things up.

The RBNZ also meets this week and no-change is expected but whereas the last meeting was dovish, recent GDP data out of New Zealand was better than expected, but that might be enough to lift the tone of the RBNZ.

Data in the Week ahead:

  • Not much going on beyond FOMC and RBNZ.
  • Some central bank speakers (Draghi, Powell, Poloz)
  • US Final GDP
  • CAD GDP.

On the Radar:

Going into the week my stance is bearish on GBP vs. USD & CAD. I remain bearish on Jpy vs USD and the comm-dolls. I remain bullish on the Dow. And there is a volatility contraction in Gold which has me waiting for the break on either side.

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

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