Is Johnson’s Bluffing and Trump’s Last Chance

GBP

Brexit negotiations dragged the pound backdown after hitting a 5-week high against the Euro on Wednesday afternoon. Boris Johnson’s self-imposed deadline of the 15th of October has now been and gone and with no further breakthroughs at the tenth round of talks tensions are starting to ride high on both sides of the channel. Though Boris Johnson did echo the European Council statement on Friday when he said that preparations for a trade relationship “more like Australia’s” are to be ramped up, which means the British government are preparing for a life without any form preferential trade agreement with European Union countries. The pound faced a similar fate against the Dollar and ended the week just above 1.29 after managing to break through 1.30 earlier in the week.

Trade negotiations continue into the week which should limit the downside potential to the pound. Until a decision has been made the pound should continue to be range bound in the levels we have seen over the last month. Though the Pound has started the week strongly as markets question the actual threat of Boris walking away from the trade talks. On a data front the big releases come on Wednesday with CPI year on year for September and Friday bringing Services PMI. With the odds of the Bank of England’s decision on negative interest rates being driven by the Brexit talks, the data release this week should not have a massive impact on the Pound.

USD

The Greenback strengthened a percent against the Euro last week as the coronavirus continued to spread across Europe. Joe Biden’s lead in the election polls are starting to slip as Trump seems to be deploying what has become a trademark late charge. An email leak of Joe Biden’s son Hunter shows that meetings where set up between a top executive at a Ukrainian energy firm and the then vice president during the time Hunter was a board member for Burisma. A conflict of interest was flagged at the time but with both farther and son assuring the public that they did not discuss Burisma, this can now seem to be a lie.

Trump will be hoping that the second and final TV debate on Thursday will give him an opportunity to close the polls further. This looks like it could be the final chance for Trump to flip the election before polling day on November the 3rd. As well as the debate, markets will be paying close attention as fears rise for double dip recession in the States. Data is not expected impact the dollar next week as we see the release of US housing data and the Fed’s beige book.

EUR

As mentioned before the Euro struggled last week as governments across Europe struggled to control increasing number of coronavirus cases. France looks to be worse hit with a new high of 32,427 daily cases over the weekend, that is more than four times the amount they had during the first spike. On Tuesday there was poor data out Germany as Harmonized Index of Consumer Prices were released at -0.4% which saw a selloff in the Euro. As always, the Euro played the other side to Sterling and spent the week reacting to the Brexit the headlines.

Markets will be paying close attention to the PMI data coming out of Europe on Friday for confirmation of a double dip recession across Europe. There will also be a wide range of ECB speakers this week and the Euro will stay sensitive to remarks on it being overpriced. But the Euro may get some relief in the form of China, as economists are predicting that the world’s second largest economy has completed a V shape recovery and is looking to carry on this momentum. A pickup in the Chinese economy should lead to higher importing which should give a boost Germany, France and Italy in particular.