UK and EU Economic Data Provide Sideshow to the Main Event

The Brexit train continues through the tunnel of uncertainty as another day passes. As we suggested in yesterday’s report, the ranges that GBP and its crosses are trading remain wide and volatile. We suggest that target orders could warrant a sanguine approach particularly highlighted with the likes of GBPAUD and GBPNZD trading in .0200 plus point ranges across yesterday’s trading session.

For now, it seems that the hours between 1400hrs and 1700hrs in U.K. time are the most volatile. This is mainly due to the time that FX Option strikes are set and London fixing levels are benchmarked. These two bellwethers are absolutely key for traders and also the fund management community. Expect this to continue this week and also worth paying attention that these times could proffer opportunity to secure better levels on hedges and spot orders.

However, before we concentrate back on the political meanderings in the U.K. and Europe, let’s take a moment to focus on some good old fashioned indicators for currency strength or weakness; economic data. The key Bank of England metrics in the form of employment and average earnings will hit the newswires this morning, as a welcome salvation from rumour and counter rumour on deal or no deal. Forecasts point to a slight weakening of data, mainly due to the fact that recent numbers in the U.K. have been very strong indeed on these metrics. 3.7 per cent and 3.8 per cent respectively are market consensus and any swing away from here could impact a fragile Pound on the exchanges. On the back of the recently surprisingly strong UK GDP post (that prevented a technical recession last week), these earnings and employment numbers will underpin current U.K. economic strength and health.

Back to Europe and the key ZEW business surveys, out later this morning are expected to show a slowdown in the EU’s largest contributor Germany. Watch the consensus forecast here of -33 to impact the single currency and as a consequence the EU ZEW number too.

Inevitably it’s back to the Brexit machinations. We notice this morning the odds of a no deal have moved down to 13 per cent. However, Antti Rinne the Finnish PM seems less confident; overnight recorded as saying there was not enough time for a deal to be reached. Having met the European Council's Charles Michel, he commented "I think there is no time in a practical or legal way to find an agreement before the EU Council meeting. We need more time."

So, this suggests that an element of kicking the can down the road will ensue, and consequentially GBP is gyrating within wide ranges awaiting the next piece of news. The feeling of brinkmanship still prevails, and one thing is for sure; nothing is certain.

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