UK Sounds Brexit Alarm As Deal Remains Elusive

All right, very good morning guys. It is Friday the 18th of December, so hope you're doing well and welcome to what in many ways is the kind of the final trading day of the week. Don't worry, we'll still be here on Monday doing the sessions as usual, but often for bigger players in the market, really today defines the end of the, the year in some respects. This year could be a little bit unique. There's still a number of unresolved, quite major issues to contend with, namely Brexit and obviously US stimulus, which I'm going to update you on in a moment. But otherwise, today could be quite interesting for the sense of, you know, if there is any kind of book squaring just going into the end of the week, end of the year, into that quiet kind of Christmas typical lull. You've also got quadruple witching today, which I'll explain in a moment as well, happening throughout the day. So quite an interesting day perhaps then, given the view that we've held since the beginning of the week, which was that generally we were looking for optimum optimism in the beginning of the week, but then those two major issues of stimulus and Brexit to be unresolved, which is very much looking the case. And whether, just given some of the relative elevation we've seen in a lot of asset prices, particularly in the equity space, For example, you know, are, are they susceptible for a bit of a pullback? And then throw in the kind of mini hand grenade of quadruple witching, which typically adds to a bit of that volatility. And are we going to see a little bit of a move today, perhaps to the downside? Yet to be seen. But let me get up to speed what's been going on overnight. Uh, the close on Wall Street was marginally positive, up roughly around 0.5 to 0.6% across the major 3 indices. Not too much really to speak of in the Asia-Pacific session. Sentiment a little bit dented. Donald Trump again coming out with some final departing blows on China. The US preparing to blacklist Semiconductor Manufacturing International Corp. and dozens of other Chinese companies, according to people familiar with the matter. That was a Reuters exclusive overnight. And then in terms of the final kind of major central bank decision coming out of the Bank of Japan, all very much as expected. They maintain their main policy settings and they extended their virus program by 6 months, saying it would take more action without hesitation if it was required. So, uh, quite similar to generally the tone we've heard from the likes of the Fed and Bank of England this week. So as we stand this morning, the dollar moved a little higher in terms of the overnight session. I don't think that's too untoward given the fact that the dollar saw a decent move and pretty consistent move to the downside yesterday. I mean, the DXY trading below 90 at the moment, so that theme of dollar weakness, it has been consistent. And as such then, that has given a little bit of support to the major pairs, albeit they're still marginally lower. And for EURUSD in the top left, and we're just at a level of kind of relative support at the moment looking at the euro futures here. So this would be a level to to keep an eye on as we go through the rest of the session. This was the high which we moved up to in yesterday morning. We broke through that, acted as a support, and has done again so late in the Asian session before this latest bounce. So that would be the first area I'd be looking at, with the kind of range then formed around that 123, which was last night's high for the euro, with some of that ongoing dollar weakness. But the bigger move, I guess, is sterling underperformance. When you're looking at the currency market at least. I've just marked this up here. You might have seen in the Amplified Discord chat, we were talking about it last night. I think it was around half 6 or so. I was putting in a few comments about a Brexit comment, and that kind of leads us up to where we are at the moment. But as you can see, EURUSD is down about 10, um, the cable's down about 33 pips at the moment this morning, and coming off those highs This was one of the main things that we were talking about in the live room yesterday, was that the pound has seen pretty incredible run. And obviously on the daily continuation, you know, we're set to close above an area really which we haven't managed to really get our head above, which is around that 1.35 throughout, going back all the way to this time last year, which puts us at kind of a multi-year high. Now a lot of that has been buoyed by the weakness of the dollar, but also anticipation of a Brexit deal. But what it does mean then ultimately is that the pound could be well be susceptible to, given its, its move higher we've had throughout the week, to flash moves lower as a byproduct of the fact that, you know, the move has been quite stretched as far as this week is concerned, i.e., kind of overbought in that sense. So it'd be something to be mindful of. I definitely don't anticipate a deal happening today. And if you look at the comments this morning, I think it really sets the stall of where we're at at the moment, which is what we'll talk about. So Prime Minister Boris Johnson has come out and said trade talks with the EU are in a serious situation after a call with the EU. Essentially what this is revolving around is he warned that a deal would be impossible unless the bloc softens its demand over fisheries. Also, the FT separately reported Brussels' €750 billion European Recovery Fund has become a sticking point, as Johnson has warned that EU-level spending should not be exempt from state aid restrictions in any agreement. So this kind of competitive level playing field. So as much as the progress that we, we seemingly made on these three points, two of them have just reared their head again. And meanwhile, talks are continuing in Brussels today, officials cautiously predicting a deal in the coming days. This does put quite a lot of emphasis on monitoring the weekend's news. I would be anticipating at this point no deal. And so in terms of not in its entirety, but no deal being struck on Sunday, which some have penciled in, and that means then just be mindful of any potential gap down that we might see at the reopening of trade on Sunday night for sterling. The Cabinet Office Minister in the UK, Michael Gove, you might have seen in the House of Lords Committee conversation yesterday said that negotiations could even continue after Christmas. He said the EU could provisionally apply an agreement, or any agreement that would come about, allowing it to delay getting the European Parliament approval until 2021. That being then, that Europe has already said they could hold a final kind of session on the 28th. So for me, the writing is on the wall. This is going right down to the wire, which was going to be to 28th, 29th, 30th. So I guess I'll be seeing you between Christmas and the New Year at this point. But from a pound perspective today, it could add as a bit of a drag, a headwind, just given that positioning, um, generally quite elevated in cable. I guess the saving grace there is dollar weakness, which is the overriding theme here in the global currency market at the moment, which can offset that. To a certain degree. So if Cable does hold up, then there probably would be a, what I'd call, moderate gap down potentially if there's no deal struck on Sunday. I wouldn't be looking for massive, given I don't think it would be wholly surprising if that does end up being the case. That does put pressure on though on Sterling. And, you know, we were talking about yesterday on the longer, higher time frame chart, you know, as much as we might have grinded it up, up toward 137, That's understandable given what we're seeing. But as if we do get down to, say, post-Christmas, down to the 27th, 28th, 29th, 30th, these types of dates, I would expect then the pressure to ratchet up and, and pretty significant headwinds then for the pound to maybe just push us back down before then inevitably either they commit to then still talking in 2021 in whatever shape or form, or they get a deal done and then we get that mild relief rally. So there's a little bit of a bit of ebb and flow to the movement, I'd anticipate, going forward. More tweets and rumors, I'm sure, to look out for today, but I would say relatively downbeat. The other thing then is US stimulus. This hasn't really come to fruition. This has been ongoing. We were at the same place this time last week. Congressional leaders are working through the final sticking points on the coronavirus relief deal, although the agreement probably won't come in time for both chambers to vote by today, and that means the federal government could shut down briefly over the weekend if senators object to temporary funding while these negotiations continue. Senate Majority Leader Mitch McConnell said, um, will probably require work over the weekend to get it through Congress. So much like the conversation and the timings I've just said about Brexit And much like the historical sense of what I've seen over the years, I would think this has still got a little bit of time to drag this out into— what then, more towards the new year, just before, and then I'm sure they'll cut a deal. But a temporary federal government shutdown over a couple of days is probably not the most unusual thing, and neither would I see it as in itself particularly damaging to markets. I guess the only thing that is damaging to markets is this idea that You know, ultimately equity markets are still elevated right now. And, um, you know, if you're looking at things like the S&P, for example, if I just bring that up on a daily, you know, we are still pretty much at record all-time high levels. So, you know, for this market to just take a bit off the top, just given the reasons that I've just said, a lot of this is building in the conclusion of some of these top-level macro themes which remain unresolved. And then you've got market index futures and options and single stock futures and option expirations today, which is called Drupal witching, which happens 4 times a year and typically can add to some intraday volatility. Well then, if we had a bit of a pullback back down towards 3,700 here, or if we were looking on the— on this time frame, would be around this level of the highs and lows You can see we've already come back down, had a test of it late in the Asia session. They've had a bit of a bounce up to pivot. It'll be quite a key level, I'd say, if we do see downside pressure to have a look at. You can see these highs are getting a little bit more shallow now, having got up to yesterday resistance and that double top around the daily R2. Any breakdown here, probably looking at the 91.75 level and then down towards 82.50 if that were to materialize. Any significant dips, once again, I think if they are significant, they just get bought into at this point. So definitely not calling for a persistent sell-off. If that did happen, I think you get buyers step in lower down to just lift the market again. Crude market, otherwise, just having a quick look elsewhere, pretty stable. And obviously it's been, uh, quite a big week for oil. You know, we have got up— I mean, look, if you look strategically on the, on the daily chart, we have hit our target to the tick almost. Um, you know, 7 cents off just hitting that $48.66, which was that high that we saw on the 3rd of March. So, um, hitting that top and just pulling back a little bit to trade where we are at the moment, which is about 50 cents off that level, makes absolute clear technical sense given how quickly and persistently the market has rallied throughout this week. So at the moment, a bit of consolidation for oil I don't think is too untoward. That probably then, uh, the platforms here would be around the $48 handle, probably on any pullback that I'd be looking at. Uh, the gold market, obviously it's, it's sort of late, and so therefore, um, at the moment it's a pretty tight range that we're seeing that's been formed over the Asia-Pacific region. 84 to 91 on the upper and lower side. So we need to see a breakout of either side of that to really make any definitive call on this. Don't really have too much of a bias really here in either way, but would probably just be more looking for the market to, to show its hand. And then potentially you get a break on these levels and a push back down. This level around 77.9 in the futures looks quite interesting as a downside target for price. And then likewise on the upside, if we did get the break and then a push back up to the high that we had yesterday afternoon, which would be the psychological 1900 handle— which if you go on the daily, 1900 of course not only just symbolic but also technically relevant for where we were trading back in the middle of November as well— would be a good upside area to keep an eye on today. All right, quick look at the calendar. What have we got to wrap up the week? We've just had the UK retail sales report come out, -3.8% against expected -4.2%. But quite frankly, there's just other things going on for the British pound at the moment, so I don't think that's too important really to consider if you're looking at the pound. The number, a negative number, albeit not as deep contraction as some were anticipating. But remember, it's negative because of the fact that in November we've had quite strict restrictions across most of the UK, so not that surprising that the number's going to be negative at this point. Otherwise, going further forward, we've got German IFO, which often is quite interesting, albeit the number shouldn't really move too much against its previous. Um, so the headline figure expected at 90, the previous 90.7. This, as a reminder, is the German companies' outlook for current and 6-month outlook of what they see for economic conditions. And could be quite interesting, I guess, perhaps, I guess, timing of the survey, but any downside surprise given the fact that Germany has just a few days ago moved into a stricter form of lockdown going forward through till the 10th of January of 2021. And whether or not that's going to impact companies' perceptions and pessimism is going to grow. We'll find out shortly. Otherwise, into the rest of the day, it's pretty quiet. There is no major US data. So all the more reason I think that it's going to be very much a sentiment-driven day upon, you know, can the markets stay up on the premise of still the belief that, look, no need to panic just yet, there's still time to run to get this stimulus deal done. Or do we just see this kind of just rollover of the markets going into the weekend? Um, it's a, it's a possibility. And then as I said, you've got all the expirations happening throughout the day. So just a quick recap for the guys, I know you're mainly trading things like the DAX, so midday, and then the E-mini S&P, NASDAQ, Dow, that's all going to happen at the market open. All right, that is it, guys. Not much more for me to add, so gonna let you get on, and I'll see you in the live chat room on Amplify Live. Have a great weekend and a good session ahead.