What Happens Next As GBP Hits Lowest Level Since 1985

A very good morning to everyone. Tuesday, 3rd of September, and it's already begun in terms of the price movement this morning. The pound sub-120, and obviously that's a, a symbolic and long-lasting technical level of focus and support given that was the kind of double bottom that we printed immediately after the initial e-referendum, uh, back in 2016. And then we tested 2017, and here we are this morning having a look just below 120. Session low printed in cable this morning. If I just change my charts over here, you can see, uh, this morning as UK and European participants have come into the market, we had a little test seeing at first kind of entrance around 6:00, 6:30 this morning. Then we broke through at about 7:00, 7:30. We've had a brief retest and it hasn't— the low point that we've had so far, 1979, has come back up to trade at 96, but sub-120 for the moment. So increased speculation, of course, of a looming general election given a speech from Boris Johnson yesterday and the options the lack of options almost to the left for parliamentary members as they return today, uh, reopening of the lower House of Commons. So we're going to discuss all of this of course in more detail shortly, but certainly the pound capturing some attention this morning. The DAX also seeing a little bit of movement, quite a nice technical level of support though it's just running into at the moment after its initial quite staggered fairly normal characteristics really of the DAX future. When it sees these kind of impulses of movement, it tends to be quite staggered. And since the cash open in the last several minutes saw another wave of selling pressure just breaking through the Asia-Pacific low point, that's taken us right down in the daily pivots to the S1. And as you can see, an area of support that we've seen over the course of the last 2 or so sessions. So Um, this again, DAX, quite typical of the kind of speculative nature of the product. You tend to see then people targeting using these daily pivots and technical levels, uh, being quite key areas to kind of manage actively the trade. Any break of below that level, I'll probably be looking down around the 30th of August high. That will come in at around 11,880, and then the lower bound, the S2 2 starts to bring in then some of the respective highs that were seen on 29th and some of the low points thereafter. So yeah, worth keeping an eye, fairly fluid situation this morning. Other asset classes, gold and T-notes a touch higher, up $6 and 3 ticks respectively. Overall then, given that slight shift to a flight to quality bid, uh, with the US 10-year coming up to— just keep an eye there technically on the, the R1, which was also encapsulating the, the high point from yesterday, late afternoon session. Obviously, uh, very quiet just given the fact that U.S. participants will be returning to market today after their Labor Day extended weekend. Excuse me. So my moderate risk-off, as I said, safe havens a little bit higher, equity index futures a little bit lower this morning. The main global issue has been headlines still regarding the ongoing trade war. Apparently, sources have suggested that Chinese and U.S. officials are struggling to agree on a schedule for a planned meeting this month to continue trade talks after Washington rejected Beijing's request to delay the tariffs that kicked in on Sunday. So apparently, according to unidentified sources, China had put in a request to delay that, of which obviously Trump has ignored. Those tariffs went into action on Sunday, and the oil levy retaliation from China also took place. But the point being is now they're struggling to actually pin down a date for them to talk. So still more political fallout. But excuse me, I'll try not to, uh, cough my way through the, the briefing. But the pound, another staggered move to the downside, again fresh lows. So as I'm going through this briefing, do keep an eye here because point being, when it comes to the long-term levels for the pound, this is a daily continuation in the futures. And this was that key area, of course, that we've been looking at for such a long period of time. Now we've got this credible threat of a general election, and obviously Boris came in and around this if I just put a square here on the right-hand side. So we've had a significant repricing from really towards what— where we were trading around 130 handle all the way down 10 points lower as the prospect of a no deal has increased given the stance that he has put forward. But just looking where we are at the moment, you can see, I guess, this trend line that Sam may have had on, uh, kind of scaling down from originally the post— or this was actually the, the e-referendum. That was actually the first uttering of the words hard Brexit from Theresa May at the Tory Party conference of 2016. We had the retest in Jan '17. So any break here, technically there's not a great deal of support. And we were looking at the spot price. This is obviously what I'm showing you, the futures. And Sam was saying that support really got to go back to 1985 and looking around a 116 handle. So that's quite a fair distance, obviously 4 points below where we're trading at the moment. This trend line here would come in, I guess, in the interim period, but then you'd be looking more psychological to 115, 110, certainly as downside levels. That's not to say we're going to get near there today, but again, the breach of such a long-standing and such a symbolic level here of focus could well open up a decent run of at least a point or two today. That would not be, uh, wholly surprising, I would say. And as I'll discuss in a second, for me, that weakness of the pound all plays into Boris Johnson's hands. And I'll explain more my reasoning of why I think that this is absolutely his strategy. On that point, let's get into this Brexit situation. What exactly is happening? So Brexit fight raises prospects of a new general election. It's the headline story. You can see the little red flash, the fact the pound has broken down through that 1.20 marker as we've just seen on the charts. Now, Prime Minister will risk losing office rather than back down. He gave a public address yesterday, but Conservative rebels say they're determined to stop a no deal. So Let me just show you this. This is the best summary I can really see this morning from the press. It's from the BBC and encapsulates the 5 points of which is really what's happened yesterday, puts us in the best possible starting position to get ready for what could happen today. So point 1, Boris implored his own MPs to back him over Brexit and reject what he said was another pointless delay being proposed by Labour. This is very important as part of the strategy, I think, from Dominic Cummings is trying to trying to muster up, which is this: the people versus Parliament. It's those parliamentarians that are stopping the will of the democratic vote. It's a miscarriage, it's a misjustice of democracy that these politicians are not fulfilling their mandate to deliver Brexit. This is what the strategy, I believe, is from Boris Johnson. He's trying to really put across that message and hence the wording that he's using, pointing to the opposition parties delaying what he feels is, um, the, the will of the people. Number 2, Downing Street told journalists the government expected to table a motion to hold a general election on the 14th of October if MPs voted to take control of business in the House of Commons later today. I will run through exactly what this means in a second, uh, so we're all crystal clear. But essentially, there is a, um, something called a Standing Order 24, which is likely to be enacted when Parliament gets underway later this afternoon, which will allow emergency debates to happen, which is where then the opposition, um, Parliament or MPs in Parliament are going to try and table point 4 on this list which is a fast-tracker bill in Commons to contemplate a further delay to Brexit until the 31st of January 2020. The other things that are happening here: the government has upped the ante by threatening to deselect some of the most senior Conservative, Conservatives in the party if they defied the party whip. This is something we discussed in the briefing yesterday. And then the fifth point: meanwhile, across the channel, the European Commission has said it was considering allowing EU countries to apply for cash to cope with a no-deal Brexit using a special emergency fund. So EU kind of holding firm for the moment, not blinking under the Boris bluff, if it is that, for the moment. And you would say we're not close enough to the deadline yet, so I'd say 0.5% is unsurprising at this point. To clarify then, why have we arrived at the situation where we are at the moment? So from the political point of view, the legislation to be put forward forward today in Parliament seeks to tie Boris Johnson's hand and instructs him to ask the EU for an extension for the Brexit process until the 31st of January of 2020. Now, if the European Council proposes an extension to a different date, what this legislation then would do is that the Prime Minister must accept it within 2 days unless that extension has been rejected by the House of Commons. So in other words, the power to decide will lie with the members of Parliament and not the government. For the PM, this of course is absolutely cannot happen because he's promised to leave do or die on the 31st of October, come what may. So it seems impossible that he would ever accept that, and then hence the talk then of an early general election, because that's why Downing Street said If that does happen, which could well be a prospect later on this afternoon, then he has no other choice but to call a snap election. Now, for me, this is absolutely going as planned for Boris Johnson. The weakening of the pound only further helps his cause because it makes his argument that the, the blocking of Parliament of trying to do what he's doing is causing this deterioration in our currency and is causing more complications for him trying to get the deal over the line and done. And so, so far so good. And I do think this is heading to the general election. So what does that mean? Well, this is the latest poll tracker where we can see the lines representing the weighted averages across all of different polls that there are, because there's obviously lots of different ones. And what you can see here is the quite, well, two real key political milestones that we've had in recent history. One is the European election. That was when the Conservative Party got absolutely decimated. They came fifth. This is the leading party of our government, came fifth. That is diabolical by anyone's standard, you know. And What happened then? Well, that was the kind of beginning of the end of Theresa May, uh, at that point. Brexit Party was the big surprise. They came out, you know, on fire, and their performance— the difference is though is that they have zero at this point representation in Parliament. And so hence the reason why we've had this narrative shift into going quite hard Brexit, no deal or die situation. From Boris Johnson as he tries to encapsulate the risk or counteract the risk of the fact that he could lose. The, the Conservative vote could, could split and some could be lost to the Brexit Party. So in order to make sure that that momentum is caught and that situation does not materialize, he needs to talk a very hard game. Now, Boris Johnson becomes Prime Minister and there is a quite clear and immediate bump up in Conservative popularity. Labour has done absolutely zero, they've just gone sideways, whereas the Conservatives have really pulled away quite substantially as the Brexit Party has faded. Basically, after the week or two from the parliamentary election, the Brexit Party— Nigel Farage has had a couple of LBC radio appearances but really he's done his job. He's got his nice little team around him now at Brussels. That's it. Farage doesn't want to be Prime Minister, and he doesn't want a full government to be sitting in Parliament every week on week. And so for him, it's done. And therefore that's been reflected in the polls. Brexit without any PR, like the machine that was underway in May in the lead-up to European elections, as that's faded away basically Brexit Party has faded with it. And as such, it's almost a perfect divergence. As the popularity fades from Brexit, it goes straight into the Conservatives. Why? Because this ain't a Theresa May government, it's a hard Boris Johnson government. And so this is all lining up in addition with all of these public spending promises that Boris and his yes-men team that he's surrounded himself with are saying. And so hence the reason why this is all going as planned for Boris to pull the trigger, and by calculation at this point could come out with a pretty firm majority government, of which he can then go back to Brussels and cut a deal. So timings, what have we got to look out for today? I was looking at the parliamentary website, what's on the agenda, and it's 2:30 when really the main chamber of the Commons reopens for business. Remember, the whole reason why this is happening is because the very tight time frame given the prorogation that's already in place now for Parliament, which can happen in the next week. And so today is going to be key because today is going to go back to, uh, Standing Order 24 and the push for point 4 on this agenda here, which is Parliament trying to fast-track through a bill to push this idea of legislation to tie the Prime Minister's hands and delay Brexit until the 31st of January. If that goes through, Boris then triggers the election at that point. Other things then to be aware of on this front is looking at the timings here. A lot of this isn't going to really kick off, it seems, until much later this afternoon. So I'd say if you got in that short at 120, I'd say you're probably best keeping that position on. I think just you've got to sit tight, I'm afraid, for the rest of the day. There's probably not a great deal of risk around blips in the dollar. Obviously you've got to keep an eye out for any trade-related comments coming out of Trump and so on, but I think that we kind of know the status quo there The only thing I'd look out for is we seem to be in a negative state in that trade situation. So any positive olive branch type conciliatory comments from either side could have a meaningful impact on markets, given the fact, as I said, the general cross-asset class mix this morning is one of a risk-off moderate sentiment. And so a positive trade comment could certainly fire things up in reverse. It's a profit-taking on those shorts in the equity space, the reversal in gold and, and T-notes. So do be aware of that. But yeah, I think overall I would expect the pound to potentially trade heavy into drift south, particularly interested when the US come in. Not that they see Brexit as more important than the trade talks, but technically, obviously, having seen the breach in the spot and the futures at 1.20, I think people will be interested stateside in this, this situation. But it could be a late afternoon show, early evening, if you're going to be trading the pound before we get the real juicy details of what exactly is going to be happening. We could finish the day with a general election being tabled by the Prime Minister. That would not be a shock if that did happen. Um, okay, the other point, just finally to explain Some of the, the other pressure on the pound, let's not forget as well, economically, um, we had yesterday UK manufacturing activity contracted in August for the fourth consecutive month to the lowest level since 2012. Brexit uncertainty mounting, fears of recession deepening, business confidence falls to a series record lows. So whilst all these political, um, movement that's happening at the moment. If you are a business, there's no way you can commit any type of capital. If you're a foreign investor looking to invest in the UK, there's such uncertainties at the moment that, um, there's absolutely no surprise that these types of figures are decreasing to multi-year lows. That really does again heap the pressure on the, on the politicians to get some kind of resolution, whatever that you know, come what may. Okay, let's move on. Other than the trade talks and Brexit, the other thing I just wanted to mention was the equity market. JP Morgan are banging that drum like there's no tomorrow. I almost feel like I'm a part-time JP Morgan salesperson, but I thought I'd point it out again because not just JP Morgan, Bank of America have also come out with a similar type of note on Friday. And JP Morgan have said it's finally time to buy stocks despite the trade woes. If I just skip down to the bottom of this, these are their, their points. Here are some of the potential global equity drivers cited by JP Morgan. US Federal Reserve is easing but high yield spreads or jobless claims aren't spiking. Global activity momentum is likely to improve going into the end of this year. Profit margins in the second half could surprise positively. Equity valuations on PE basis are undermined— under— underminding— that's a typo there— and investor positioning remains defensive without inflows, which is contrarian bullish signal. So we've kind of gone over this before. They've been backers of this call for the last couple of weeks, but I thought I'd just point it out again. A little bit of a division on Wall Street, I'd say. Not the biggest names, but UBS, Legal General, they've been much more bearish, looking to rejig their portfolios to position out of— to become underweight equity exposure, whereas JP Morgan and Bank of America seemingly just filling their boots at the moment. But I would say, as discussed about a week ago, I think that those two, or those players in, in the market, are looking at different time horizons. And I think in the short term, I think JP Morgan and Bank of America could well be right, whereas in the, in the medium to long term, I'd prefer UBS's strategy in terms of portfolio composition. And elsewhere, final thing I'll talk about before I hand you over to Sam We had the RBA interest rate decision overnight. No, no shocks there. If you actually look at the Aussie currency, it is— it has seen a decent bump higher overnight after the result came out. They kept rates on hold as expected at 1%. There's obviously a very small amount in the market looking for potential cut. That didn't materialize. And if I look at one of the main phrases that they said. They said, um, they left policy unchanged as it waits to see how a combination of interest rate cuts and tax relief impact the economy, while Sydney property prices already showed renewed strength. And remember, it's the housing market which has caused a lot of, um, concern for policymakers in Australia. And as such, stabilization there— in fact, uh, property prices going back higher has been— has kind of led to the idea that potentially no further cuts for the moment, despite what had been building in a few weeks ago, possible multiple rate cuts. So yeah, if anything, less dovish than expected rather than being outright hawkish. This led to appreciation of the Aussie overnight, and that in the short term outweighing any negativity from the trade situation. Okay, as you can see, I'm struggling to talk without coughing, so let me hand you over to Sam and he can finish things off on the tech side. Okay guys, good luck. If you're trading, break the headlines.

Hi guys, good morning. Yeah, pound struggling, uh, and it's, uh, it's going to be very, very important today just to to keep an eye on where we close, where we close the day. Is it below 120 or above? However, you know, opportunity-wise from then for the short might be, uh, might be long gone the way it's looking at the moment. As, as I said to Anthony before, the next real key level is from the, the 80s, uh, somewhere. So quite a way down. And you've got to imagine there's stops here. You've got to imagine from a psychological point of view, now we're below 120. We closed the day below there, and really, uh, it's, uh, it has probably got a bit more to go. Um, not to say, you know, this time in 6 months I don't think we'll be higher, uh, but certainly you've got to trade what you see here. And below 120, the classic there, not bad, down to the previous low of the day, um, not looking too good. And Euro Pound as well, we have a quick look over here, is just coming up to quite a— well, you can see the line is still pretty much drawn on here a key point. I would argue it's there, so just, uh, around 91.45 and a half in the futures, um, a bit of a breakdown point that we had on the 22nd. Again, close above there, and even the euro, which is under considerable pressure elsewhere, could find a bit of strength here. Euro-dollar is, uh, drifting as well. Big data to the downside yesterday into the afternoon, bit of recovery overnight, but again is struggling, and, and, uh, obviously it's on, on the lows, uh, of the year. And so the dollar is, is strengthening, and like Anthony said, obviously got to be aware for any comments today on the trade side. And we had a few from, I think, Trump, was it yesterday, or something to do with the trade. And, and it's just not buying the weaker dollar at the moment. So you've got to, I think, here again go with that flow and looking for opportunities to, to go short. And I think with you know, markets like the, the euro here, yeah, you're happy to, to stay short as long as, you know, trend lines like this hold. And obviously that looks like it could if it was to come up shortly, mark up as well with the, the previous low of the day at 1.0970, uh, around there as well. So quite a key area, maybe intraday happy to stay short euro dollar as long as that holds. And if not, then obviously you've got some other key resistance points to come into play. But every time we push higher, we're just met with a big move to the, to the downside over the coming days as well. Equities, we talked, uh, for a while yesterday and every other briefing there has been just about the importance of this area here. Called it, I guess, 2950 down to 4300, just such a key, key zone. So just to reiterate again, I wouldn't really fancy being long like JP Morgan are saying unless we can close above there, just because the similarity to this trying to trade to October, November, December last year, uh, is, is uncanny. So unless we close above, not really too interested. And if we do, I think a medium-term trade to the all-time highs is on the cards. However, at the moment we are trading below and again held very well yesterday morning And I guess you could start to just see if there's any trend lines that come into play. Not really as of yet, but you can maybe look to get those third tests around, well, potentially just below that S2, which has acted as pretty good support as well from the previous high that we had on the 28th, as I was talking about. A break below there, then some— we are drifting down again. It's obviously worth getting the, the cue from what happens in European equities this morning. But unless we get above that, that 2943.50, I would remain of the bias that we could be drifting lower, similar to the, uh, the euro, in that you might be happy to stay short today as long as this trend line holds. You can see from yesterday's high to this morning, uh, to the— sorry, the Labor Day high, to then today's high as well. As long as that holds, then yeah, you'd be happy to go short. A break of that, and sure, you get a bit of reversal pivot from yesterday and those highs from yesterday morning, and, uh, Friday afternoon could well be of option. Gold, we talked about yesterday being in two different ranges, having broken out the, uh, the top part or the bottom part of the one that we held from 26th to the 29th. We're still within that, and that's how I would look at this market. You know, buyers in charge of 1525 and sellers 1541. Breaks either way, you could see the push back up towards those highs of the year. To the downside, then you can be— even the way gold moves, looking at 1500, despite there being quite a lot of previous levels of resistance to act as support below. So for gold, it— for me, it's just a case of holding firm on that and waiting for the market to really tell us what's going on. Obviously expect the volume to slightly, you know, increase after Labor Day yesterday as well. Quick look over at oil as well. You can see here, not too much in the way of movement from yesterday, but certainly— and I was just looking again on the the longer-term chart. And we've said this before, and in that, just waiting for the real move in oil to come. And that could be when it breaks out of the trendline to the upside or the downside as well. Just going back from the August low, we're not too far from a potential third test of that trend. And as well, from the upside, the April highs, not too— well, we weren't too far yesterday anyway from potentially reaching at the top end of that. So this is a daily chart on oil. I think there's no harm in just waiting for a break either way. To the downside, from a medium-term trade, there's that August the 26th low, and then obviously the low that we had back on the beginning of— middle of January and then beginning of June could come into play. To the upside, if it breaks through, well, you'd imagine a decent run higher towards $60. But similar with those recent highs, you see two equities, you're starting to get that correlation coming into play. So keep an eye on, on those two as we go through the day as well. Uh, the DAX just starting to recover, and this is a, you know, we've already had, I guess, if it's on a 5-minute, a test of that whole area you can see marked up. So, so quite key from an intraday point of view what happens around here. Does the DAX decide to hold here and actually equities start to push lower, or a breakthrough and it turns to being a false break, and actually this market then pushes higher and equities in the US follow suit? So quite a key one to keep an eye on now for, for the DAX. Obviously, um, other things going on certainly in the currency space, and just bringing in the, the euros, as I did this chart for the, for the strategy. Yesterday, let's move this away. I think one to keep an eye on would be the retest of this trend channel. Again, doesn't look like it's gonna come into play for now, but something to just to focus on, on any push higher. And then you are looking really at the next levels down at 108.60 from May 2017. Not completely out of the question that they— that can come over the next couple of weeks. And obviously, like the pound, again, you'd be keeping a close eye on where we close the day and week as well. Any questions, as usual, please let us know, trading live or on YouTube. It's looking like it's going to be a pretty interesting day for the pound. Really could be a big movement either way, and keep a close eye on obviously where we finish as well. Hope you'll have a good trading day, and I'll catch you later on.