Pounds swoons after Brexit legal advice; US stocks add to recent gains

Summary:

  • Sharp drop in GBPUSD after Cox legal advice

  • Lower US inflation drives the dollar lower

  • S&P500 back near 2800 handle; More bad news for Boeing

  • DE30: Bulls continue to dominate the Old Continent

  • Top 3 charts of the week: UK100, Oil and USDIDX


There’s been a swift move lower in the pound today after the government’s top lawyer failed to verify claims that the latest concessions from the EU amount to a legally binding guarantee on the backstop in what appears to be a major false dawn for PM May. Attorney general Geoffrey Cox has said that the new deal will “reduce the risk” that Britain could be trapped in the Customs Union, but this is unlikely to be enough and has sparked an angry reaction in the pound. The GBP/USD rate is now trading back around $1.3050 and lower by over 100 pips in recent minutes. The bulk of Monday’s gains have now been handed back and it looks like any hopes of an unlikely victory for the PM later have been extinguished when parliament vote on her deal at 7pm GMT.

 

The February inflation data is below expectations showing only limited inflationary pressure in the US economy. Why the report is important? Inflation is crucial for the Fed and following an uptick in wage growth in the US there could have been a concern that it could translate into inflationary pressure and force the Fed to hike rates despite slowdown concerns. But that’s not the case and the Fed will be able to stay patient. February was really the last month when high core inflation (ex food and energy) could scare investors as higher base effect should reduce it from March until the end of 2019. US futures have moved up and US dollar down after the release.   

 

The US stock markets made a roaring start to the week with large gains seen across the board. Tech stocks were amongst the best performers and the boost has seen the US500 return to trade in the vicinity of the 2800 handle - an impressive recovery from the lows of 2720 seen on Friday afternoon. One interesting aspect of Monday’s trade was a notable divergence between the US500 and US30, largely due to the large weighting of Boeing in the latter. Boeing shares looked to recover yesterday after opening sharply lower, but they are under pressure once more this afternoon after the UK followed several other countries in grounding the 737 Max 8 jets.

 

Not much has changed on the DE30 chart from the technical point of view since yesterday. The index kept marching higher until bears became more active in the vicinity of 11600 pts handle. The German benchmark moved lower this morning but downward move was halted in the vicinity of 33-period moving average (green line, H4 interval). 11680 pts handle remains the nearest relevant resistance level and a break above would result in setting new multi-month high.

 

Our latest 3 charts to watch this week focuses on the UK100, Oil and USDIDX and can be found here.

 

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