All Eyes On Brexit: How Politics Will Dominate The Markets

With the Brexit Withdrawal Agreement now agreed between the UK and EU, find out how the markets could react.
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Last week had a couple of interesting market developments.

There was some progress in Brexit negotiations. The Italian budget concerns stayed high.

Growth numbers for the EU continued to disappoint. This week the market’s focus will turn to growth and politics.

In this article, we’ll go through important events that happened last week. We will also discuss events to look out for in the week ahead along with some trade ideas.

Below are the countries we will discuss in this week’s article:

United States Dollar
Canadian Dollar
Great British Pound
Australian Dollar
New Zealand Dollar
Japanese Yen
Swiss Franc

United States Dollar

What Happened Last Week

The USD started the week soft. This was following dovish comments from Fed vice-chair Clarida the week before.

Clarida noted that slowing global growth is a headwind to the US economy. He also added that the Fed Funds rate is close to neutral.

These comments also sent US 10-year treasury yields lower. This put further pressure on the USD.

The USD was supported throughout Tuesday and Wednesday. A predominant risk-off tone caused safe-haven inflows into the USD.

On Wednesday reports stated the FED might be contemplating a pause to its rate hikes. This caused a little USD weakness on Thursday.

Howe, the reaction from this was muted. Especially following other recent less hawkish comments from FED members.

The Dollar index finished the week strong at 96.916. Part of the USD strength on Friday was due to weakness in the Euro.

The Week Ahead

We have a slightly busier economic calendar for the US this week.

On Tuesday 27 November the week kicks of with a speech by Fed’s Clarida.

Fed Clarida’s speech should be interesting. The Dollar sold off two weeks ago after his comments about the FED’s hike path.

Clarida believes the FED is close to their neutral rate. He also said that slower global growth is a concern.

Further comments in this light will be important. On Tuesday we will also have Consumer Confidence for November.

Consumer Confidence is expected to slow to 135.5 from 137.9. Consumers and their confidence are vital for GDP.

Over 70% of US GDP comes from private consumption alone. When consumers are confident about the future, they spend more.

Even a small miss on expectations will still have confidence at 18-year highs. This should be supportive for growth going forward.

On Wednesday 28 November we have Prelim GDP QQ. Markets are expecting GDP to remain unchanged at 3.5%.

Seeing this is the 2nd estimate of GDP for Q3 we don’t expect much from this release. A big deviation can still be market moving though.

Watch out for Fed talk this week

Also on Wednesday, we have a speech by Fed Chair Powell. This will be important given the recent less hawkish tones from Fed members.

Markets will be listening to see if Chair Powell has changed his previous hawkish tone.

On Thursday 21 November we have PCE core inflation numbers for October. Markets are forecasting a slight drop to 1.9% from 2.0%.

PCE is the Fed’s preferred measure of inflation. Despite this, the reaction is usually muted as CPI is released a week or two before PCE.

We also have the FOMC Meeting Minutes for the November meeting. According to Danske Bank, they don’t expect the minutes to signal a dovish Fed.

They explain that the Fed is unlikely to stop hiking until they reach 3.0%. There is a lot that can happen until then.

One of the main events this week will be the G20 meetings. Markets will be scouring the news for any developments in the US-China trade war.

The long-awaited meeting between Trump and Xi is only scheduled for Saturday 1 Dec.

That means any major developments will happen over the weekend.


Fed speeches ought to provide some possible trading opportunities this week. Watch out for Clarida and Powell’s speeches.

Clarida was dovish with his speech two weeks ago. If he remains dovish the reaction will probably be more muted.

If he comes out hawkish then that can provide a good buying opportunity.

Watch out for Powell’s speech. He was hawkish in October, so a dovish tone can provide a trade opportunity.

If Fed Chair Powell voices the same concerns as Clarida, expect Dollar weakness.

Also, make sure to monitor the FOMC minutes. New information can be market moving as well.

Canadian Dollar

What Happened Last Week

The CAD was pressured throughout the start of last week. A further fall in oil prices and the risk-off sentiment was the main drivers.

Oil prices have fallen over 30% from the start of October. The Weekly chart below better illustrates the size of the drop.

The main reasons for the fall in oil have been attributed to supply and demand. Expectations are for supply to outweigh demand from 2019.

The upcoming OPEC meetings in December will be significant for Oil markets. With oil prices this low there is a good chance of possible output cuts being approved.

On Friday the CAD was pressured with oil falling 6% on the day.

On Friday we also saw Canadian CPI number for October. Headline CPI YY came out higher than expected at 2.4% versus forecasts of 2.2%.

The BOC’s preferred measures of inflation are the CPI Trim, CPI Median and CPI Trim. All three the core readings were unchanged from prior.

The three core measures are all close to or on the BOC’s 2% target.

The Week Ahead

There is a light economic calendar for the CAD in the week ahead. We expect Oil prices to remain a primary driver for the CAD this week.

On Friday 30 November we will have Q3 GDP numbers for the CAD.

Markets are expecting GDP MM to stay unchanged at 0.1%. GDP QQ Annualized is expected to drop to 1.9% from 2.9%.

According to Scotiabank, the BOC’s forecast for Q3 GDP was 1.8%. This means a drop to 1.9% will not be too surprising.


Make sure to keep an eye on Oil prices in the week ahead.

If we see a further fall in oil prices that should keep the pressure on the CAD. A recovery should be supportive for the Canadian Dollar.

The best-case scenario for a trade would be a miss in GDP and a further fall in Oil. Another possibility if a recovery in oil with a beat in GDP.

There is a lot of variables at play for the Canadian Dollar at the moment. Our approach is wait-and-see for the CAD right now.

Great British Pound

What Happened Last Week

In the UK the focus remained on Brexit last week. It seemed like there were new developments every hour.

At the start of the week, the GBP moved sideways. Attention was firmly set on whether PM May will face a possible leadership challenge.

Reports stated that the 48 required letters for a challenge were not submitted. This kept the Pound flat during the start of the week.

Positive Brexit developments sent the Pound higher on Thursday. As EU and UK negotiators agreed to a draft text of future ties after Brexit.

This meant that both the withdrawal and future ties texts were in place.

There were no important data releases for the Pound last week.

The Week Ahead

The Pound has a very light economic calendar this week.

In terms of Brexit, the first important developments will be on Monday. EU leaders are voting on the withdrawal and future ties agreements on Sunday 25 Nov.

If the EU rejects the agreements it will be back to square one. We would expect that to be negative for the Pound.

From press reports, it seemed like the EU is likely to accept the agreements. Even if that happens the challenge would be approval from the UK Parliament.

On Wednesday 28 November we have the Bank Stress Test Results. We also have the BOE Financial Stability Report.

We expect both these events to take a back seat to Brexit this week.


The Pound has been a risky currency to trade lately. The main driver remains Brexit.

The challenge is that Brexit sentiment seems to change daily.

Watch out for news over the weekend and Monday about the EU summit. If the EU accepts the agreements we would expect some support for the Pound.

However, keep in mind that the majority of Brexit headlines has been faded recently. Even if the Pound is supported from the EU summit it might not last long.

Have the news squawk ready to take advantage of further developments.

Australian Dollar

What Happened Last Week

The AUD is considered a commodity currency. This means it usually appreciates with risk-on sentiment and depreciates with risk-off tones.

It wasn’t surprising to see the Aussie Dollar pressured at the start of last week. With a risk-off tone which saw equities and commodities sell-off while bonds appreciated.

On Tuesday last week, we also had the minutes from the previous RBA meeting. As expected, the minutes did not give a lot of new information.

The RBA kept to their stance that they see no case for near-term rate moves. They also noted that employment has been growing faster than forecast.

Unemployment is expected to fall further in the near-term. A concern for the RBA remains stagnant real earnings.

We highlighted real earnings as one of the RBA’s concerns in a previous article.

Wages have not recovered after the Global Financial Crisis.

For the remainder of the week, the AUD was driven by risk sentiment. It came under pressure with the CAD and NZD on Friday as the oil sell-off continued.

The Week Ahead

We have two important data points for the AUD due this week.

On Wednesday 27 November we have construction work done for Q3. Markets expect Construction Work for Q3 to drop to 1.0% from 1.6% in Q2.

Westpac explains Q2 Construction work was boosted by public works and commercial building. They expect Construction Work to slow to 0.6% in Q3.

On Thursday 29 November we have Private Capital Expenditure for Q3.

After a 4.2% rise in 2017, Private Capex slowed to -2.5% in Q2. Markets are expecting a climb to 1.0% from -2.5% in Q3.

Both Construction Work and Capital Expenditure are key inputs for GDP. These numbers will shape forecasts for Australia’s Q3 GDP.

Another thing to keep track of this week will be global Equities and Commodities. Especially after last week’s big sell-off in both asset classes.

The G-20 meeting with Trump and Xi will also be important. Australia is a big exporter to China.

This is why the recent slowdown in China has weighed on the Aussie Dollar. Any positive or negative developments with the trade were will move the AUD.


Any big deviations on Construction Work on Private Capex will be important. These numbers feed into GDP and will be watched closely by markets.

Also, keep the news squawk on for any potential trade war developments. The newswires are bound to be busy with comments from the US and China.

There are a few variables at play for the AUD this week. We have important data points, trade war and risk tones.

The best trade opportunity would be where all these variables are aligned.

New Zealand Dollar

What Happened Last Week

The NZD held up surprisingly well again during risk-off tones at the start of last week.

This was despite yet another fall in Dairy Prices last week. The Global Dairy Index came in at -3.5% versus a prior -2.0%.

Westpac notes that dairy prices have fallen over 20% from the peak in May 2018.

It seems like the short squeeze on the Kiwi Dollar is continuing. The NZD had an extreme net short positioning a couple of weeks back.

With recent positive economic data, the NZD has recovered across the board.

The NZD did show more weakness at the end of the week. This was due to a risk-off tone in the markets.

Moves were exacerbated by thin liquidity due to US bank holidays. The NZD finished the week lower against the majority of other majors.

The Week Ahead

The data for the NZD starts early this week.

On Sunday 25 November we have Retail Sales for Q3. Markets are expecting a 1.0% rise from 1.1% in Q2.

After beats in GDP, CPI and Employment for Q3 this will be an interesting release. Especially if Retail Sales also surprises to the upside.

Westpac notes that monthly spending figures suggest a positive number. They did warn that in Q3 oil prices were still high and could have curbed consumer spending.

On Tuesday 27 November we have the RBNZ Financial Stability Report. The RBNZ was less dovish with their recent rate statement.

Markets will look to the Stability Report to see if anything has changed. More importantly, will be Governor Orr’s press conference on Wednesday 28 Nov.

He will be testifying about the Stability Report. His words will be carefully scoured for any clues to monetary policy.

On Thursday 29 November we also have the NZD business outlook for November.

The drop is Business confidence was a major concern for the RBNZ in August. It was part of the reason for their dovish stance.

Business outlook has improved slightly over the past two months. Westpac notes that the November survey looks mixed.

On the one hand, lower fuel costs would have been positive for businesses. On the other hand, the drop in dairy prices would damage agricultural confidence.

Either way, this should be an interesting release this week.


The first thing to consider for the NZD this week will be risk sentiment.

If global equities have another drop it should pressure the Kiwi Dollar. A recovery in stock markets should be supportive for the NZD.

Also, keep track of the important data points this week. Especially the Stability Report and Governor Orr’s press conference.

The best trade opportunity will be one where all the factors align with each other. Evaluate the risk tone in the markets with any NZD trades.


What Happened Last Week

The Euro started the week on the back foot.

Tuesday saw the Euro come under a lot of pressure. This was due to the ongoing Italian budget concerns.

Italian PM Di Maio reiterated that they were not going to get rid of their budget decisions. While the EU’s Centeno stated the Italian budget did not improve the Italian debt situation.

Along with a negative risk tone the Euro sold off across the board on Tuesday.

On early Wednesday the risk tone and the Euro had some reprieve. Reports stated that Italy’s Salvini might be willing to drop the 2.4% deficit target.

This was later denied by the Italian government. The EU commission released a statement rejecting Italy’s proposed budget.

The commission said a formal excessive deficit procedure against Italy was possible.

All these developments kept the pressure on the Euro. On Thursday we had the latest ECB Monetary Policy Meeting Minutes.

The most important points in the minutes were about growth. The ECB noted that risks to the growth outlook were tilted downwards.

The ECB has remained positive about Eurozone growth. The recent misses on growth data seem to contradict this view.

Friday saw a lot of pressure on the Euro with the latest PMI data.

The first blow came from big misses on German PMI data. The manufacturing PMI was softer at 51.6 versus a forecast of 52.2.

German Services PMI had a big miss of 53.3 versus a consensus of 54.5.

Short after the German PMI’s we also had misses on EU PMI data.

EU Manufacturing PMI came in lower at 51.5 from a prior 52.0. The Services PMI was also softer at 53.1 versus expectations of 53.5.

The Week Ahead

On Monday 26 November we have the German IFO numbers.

Markets are expecting IFO Business Climate to slow to 102.3 from 102.8. The IFO Current Conditions are expected to drop to 105.3 from 105.9.

The drop in the IFO numbers has not been as pronounced as the ZEW numbers.

Danske Bank explains that a rebound is expected in IFO numbers. They also note that further declines are possible following the soft ZEW figures.

On Monday we also have a speech by President Draghi.

On Thursday 29 Nov we have the ECB Financial Stability Review. Given the recent concerns about growth, this report should be important.

The market will be looking for any signs that the ECB is turning dovish on growth.

On Friday 30 November we have Flash CPI numbers for November.

Expectations are for CPI YY to slow to 2.1% from 2.2%. Core CPI YY is forecasted to remain unchanged at 1.1%

Headline inflation has managed to move above the ECB’s 2% inflation target. The big challenge is Core CPI has been range bound since 2015.

At 1.1% core inflation is still very far away from the ECB’s 2% target.

Danske Bank expects the recent decline in oil prices to push headline inflation to 2%.

Apart from the data, we expect Italian budget concerns to remain in focus. Especially with potential punitive action from the EU commission against Italy.


With recent developments, our medium-term bias remains bearish for the Euro.

Keep the news squawk ready for further Italian budget concerns. Any punitive threats should be enough to move the markets.

Look out for a possible dovish turn from Draghi in the Stability report testimony. If Draghi starts to turn negative about growth it will weigh on the Euro.

We will look to sell the rallies on the Euro for the time being.

Japanese Yen

What Happened Last Week

The Yen found support at the start of the week. This was due to a predominant risk-off tone in the market.

US equities continued to sell off following the prior week’s correction. The picture for US equities is looking shaky at the moment.

On Tuesday Equities sold off across the board. Concerns about global growth were the most significant contributor.

As a safe-haven currency, the Yen gained across the board on Tuesday and Wednesday.

With the 6% fall in oil prices on Friday, risk-off sentiment was boosted. This kept the Yen supported througout Friday’s session.

We also had Core CPI Nationwide YY come in unchanged at 1.0%.


The Week Ahead

The Yen has a busy but light calendar this week.

On Monday 26 November we will have Flash Manufacturing PMI. On Thursday 29 November we also have Retail Sales numbers for October.

Markets expect Retail Sales YY to edge up to 2.6% from 2.1%.

In addition, there is also Industrial Output MM on Friday 30 November. Markets expect it to jump to 1.2% from -0.4%.

The data this week should paint a broad picture of economic health. All of the data points are important, but we don’t expect them to be market moving.

Risk sentiment should remain the primary driver due to the Yen’s safe-haven status.


The most important indicator for the Yen this week will stock markets.

Further declines in global equities and commodities should have markets worried. This will most likely keep the recent risk-off sentiment in play.

We would expect the JPY to stay supported as long risk tones remain negative. If we see a recovery in risk tones the JPY should be under pressure.

Also, keep a close eye on the G-20 meetings this week. Especially in the run-up to the Trump and Xi meeting.

Keep the news squawk on to take advantage of further trade war developments.

Swiss Franc

What Happened Last Week

The primary driver for the CHF was risk sentiment last week. It was surprising to see the CHF outperform the Yen as a safe-haven last week.

There were no other important data points for the CHF last week.

The Week Ahead

The CHF has a light calendar as usual. Much like the Yen, the CHF is more driven by risk sentiment than data.

This week we expect risk to remain a key driver for the CHF. Furthermore, any developments between Italy and the EU will be important.


At the moment risk-based trades will be the best opportunity.

It is important to note that the CHF can move unpredictable at times. In other words, it does not always follow risk correlations as expected.

Our bias for the Swiss Franc would be in line with risk sentiment.

Without any clear catalysts, we do not see any trade opportunity for the CHF right now.

Wrap Up

It looks to be a much busier week ahead this week.

The Financial Stability Reports for the NZD, GBP and EUR will be important.

Important data points are the FOMC Minutes, NZD Retail Sales and Business Outlook. Also, look out for CAD GDP, and AUD Capital Expenditure.

In terms of politics, expect Brexit and Italian budget concerns to stay key movers. Also, be careful of the G-20 meeting this week. Watch out for any comments about the US-China trade war.

Also, keep a close eye of global equities and commodities. Big moves in either of them should continue to impact risk sentiment.

Good luck with your trading.


Feel free to leave any questions or comments below.

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