There is no end to the prevarication of the UK or the intransigence of the EU.
Brexit is proving to be an immovable force meets an unstoppable object. This is, of course, a paradox since if there were such a thing as an unstoppable force, there could be no such thing as an immovable object! So it is proving with the Brexit negotiations. Neither side is prepared to see the others point of view. It could be argued that the UK government is grappling with its own divisions over the question of a hard or soft Brexit and this is harming its negotiating position.
The UK is almost flatly refusing to provide a sensible and considered response to the EU’s demands for progress on three key issues before talks regarding a future relationship can begin. Both Michel Barnier and Jean-Claude Juncker were critical of the UK’s approach yesterday as the third round of talks petered out.
Sterling continues to suffer at the hands of the all-conquering euro as business investment slows to a crawl before seemingly stopping completely. It reached above 0.9300 briefly yesterday before taking a breather before an assault on the next resistance at 0.9325.
No end in sight
The target for most longer-term traders when the euro broke resistance at 1.1280, versus the dollar, just 45 trading days ago was 1.2000. That was achieved yesterday and the positive factors that have provided drivers have combined with the negatives facing the pound and dollar to produce a “golden scenario”.
The trading community don’t often subscribe to the “if it ain’t broke don’t fix it” way of thinking so there will be a lot of speculation about where this rally will end. Having traded as low as 1.0340 in January, the turnaround is spectacular. Political risk has faded and the economy has started to grow across all areas of the region. Monetary policy is still accommodative and shows no sign of being tightened as the ECB maintains a cautious approach.
Mario Draghi, the ECB President, has been clear in his opinion that the rise in the euro is a consequence of the market’s confidence in the performance of the economy and he is not able to “talk it down”.
Employment data to be released on Friday in the US could provide a correction but the uptrend is likely to remain intact.
Trump makes landfall in Texas
The pictures on the TV of President Trump arriving in Texas waving the flag could not have been better directed. It was a typical response to the problem but you know it will be only a matter of time before he residents of Corpus Christi and Houston will be complaining about a lack of Federal action.
The cost of the storm is starting to be calculated and it is likely to be around $20bn. This cost is the insurers' losses, the full cost is likely to be higher and that will be covered by the National Flood Insurance Programme.
Traders will await the FOMC meeting next month to see if they make any reference to the storm and what effect it will have on future Fed actions.
North Korea, perhaps coincidentally, maybe by design, launched a missile test which flew over Japan and landed in the Western Pacific. The yen and Swiss franc both benefitted from the lowering of risk appetite as did the euro celebrating its newfound status as a safe haven currency.