Intense Volatility Continues as US, China & Brexit Drives the Flow

Daily Update – 14th March 2019

Yesterday’s Market 

• USD Producer Price Index

• GBP Budget Report

Yesterday Explained 

In the data front, the EU released Industrial Production for January, which rose monthly basis by 1.4%, while the yearly reading presented a 1.1% decline, both beating market's expectations. In the US, inflation at factory levels increased by less-than-anticipated in February.

There was no change to the usual status, that is, that the Parliament can't agree with a deal that doesn't guarantee total independence from the EU, particularly focused on trade and the border issue in Ireland.

Meanwhile, EU officials are leaned toward a longer extension but opened to a shorter one. Barnier clarified once again that the deal is not open for renegotiation, adding that his main concern is not an orderly Brexit, but to organize the future relationship with UK.

Today's Market

• EUR Harmonized Index

• USD Jobless Claims, Home Sales

Today’s Focus 

For the EUR, finalized February inflation figures are due out of Germany and France later this morning. We would expect the EUR to ignore the figures, barring a material deviation from prelim numbers. With the economic calendar likely to be of little influence, market risk sentiment through the day will remain the key driver. Updates on trade talks between the U.S and China and Brexit will be in focus through the day.

For the Pound, there are no material stats scheduled for release through the day, leaving the Pound in the hands of Brexit chatter and Parliament. While Theresa May’s struggles continue, the Pound found some much-needed support on Wednesday. The 2% rally came off the back of Parliament voting against a no-deal Brexit. The next vote is on whether to extend Article 50 and the vote will be later today. A vote in favor of an extension will see the British government request an extension from the EU. A vote against an extension would leave the option of re-voting on the existing deal or for Britain to leave the UK without a deal.

Today’s vote could see the Pound give up Wednesday’s gains, with interest, in the event that MPs vote against an extension. An extension and we’ll be talking about Brexit for a little while longer, though Theresa May would possibly be on the way out. The general consensus is that MPs will vote in favor of an extension, which would be positive for the Pound. There could be a surprise, however.

Across the Pond, the weekly initial jobless claims and February import and export price figures are due out this afternoon, ahead of January new home sales figures.Barring a jump in initial jobless claims, we would expect the numbers to have a limited influence on the Dollar.

Risk sentiment will continue to impact the Dollar. A Parliamentary vote in favor of an extension to Article 50 later today would likely add further pressure on the Dollar later in the day.