The Cable opened the week with a 130+ pips gap lower than last Friday’s closing price.  The reaction came after comments made by London Mayor Boris Johnson on Sunday.  He voiced his support for Britain to leave the European Union as opposed to Prime Minister David Cameron, who is in favour of staying.  Boris Johnson is a prominent political figure; his comments carried significant weight and fueled uncertainties in the Sterling.

David Cameron has set the referendum date on 23rd June, which is 4 months away.  We will likely see tug-of-war between “Brexit” and “Bremain” until the referendum date.  At this point in time, we see a close fight between the 2 camps with the “Bremain” camp having a slight edge.

“Brexit” has little impact on the Euro, as reflected in the small weekend gap of less than 25 pips.  Do keep a watch out of the other “exit” … the “Grexit”.  It may come back to haunt the Euro again, in coming months.

Besides “Brexit”, the developments in the Crude Oil “Production Freeze” proposal will continue to remain the focus of the market.  Venezuela and Qatar joined the bandwagon lead by Russia and Saudi Arabia.  WTI Crude jumped to $32 per barrel at the start of the week.  We expect the recovery of oil prices to meet with head wind primarily because of 2 reasons:

  1. The proposal is only to “Freeze” and not a “Cut” in production level.
  2. There are still a lot of surplus inventories and it will take a while to see significant drop unless production is cut.

Reserve Bank of Australia (RBA) offered little surprise in their minutes.  They highlighted both the good and the not so good, citing improvements in their economy and concern in inflation.  Two days after the minutes, their employment data reflected some reality.  With jobs lost hitting 7.9K instead of the expected growth of 12.9K and unemployment rate rose from 5.8% to 6.0%.

However, the Aussie is holding up well due to the return of risk appetite and the weakness in the Dollar.  The same reasons benefit the Kiwi as well, even though the prices of diary products have been falling consecutively for 4 months.

There are no many data scheduled for this week.  Most notably are German Ifo Business Climate, UK Second Estimate of their GDP and US Prelim GDP.  We expect the actual data to be within market consensus and the reaction should be limited.

 

Top News This Week

Europe: German Ifo Business Climate.  Tuesday 23rd February, 5pm. – We expect figures to come in at 106.5 (previous figure was 107.3).

 UK: Second Estimate GDP q/q.  Thursday 25th February, 5.30pm. – We expect figures to remain unchanged at 0.5% (previous figure was 0.5%).

US: Prelim GDP q/q.  Friday 26th February, 9.30pm. – We expect figures to come in at 0.5% (previous figure was 0.7%).

 

 

Fullerton Markets Research Team

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