With an Article 50 extension looking more likely by the day, we can see why some research houses are calling for cable at 1.36/38. But we see enough uncertainty to keep GBP/USD trading in a 1.30-33 range.

USD: Continue to favour strength in USD/JPY

The dollar is proving a bystander to events overseas at present, but retains a gently bid tone. US durable goods orders today are unlikely to be a game-changer and instead we continue to focus on USD/JPY, where high USD hedging costs and a Bank of Japan meeting on Friday favour a return to the 112.20 area.

EUR: Another poor piece of activity data today

EUR/USD has been helped by the recent rally in sterling and 0.8500 is proving some kind of floor for EUR/GBP. Already released German data signals downside risks to the 1% month-on-month bounce-back expected in eurozone industrial production today. This follows very weak readings in November and December. Very low levels of volatility suggest that EUR/USD is proving sticky and will struggle to break above the 1.1300/1320 area today.

GBP: Deal or No Deal?

After another rejection of Prime Minister Theresa May’s withdrawal deal last night, the path ahead for sterling looks no clearer. Is her withdrawal agreement really dead or will it make a comeback when parliament is really desperate? And it may just be positioning, but it seems the EU has little appetite for a ‘short extension to prepare for no deal’. For today, the motion to reject a no deal Brexit should be widely approved, leading us to the more interesting vote tomorrow on the request for a formal Article 50 delay - and potentially a series of indicative votes on what parliament really wants. We can see why some research houses are calling for cable at 1.36/38, but we see enough uncertainty to keep GBP/USD trading in a 1.30-33 range. So far, the realised volatility is just about justifying the exceptionally high levels of implied volatility, e.g. 13% for the one week tenor, but this will be difficult to sustain over several weeks.

RUB: Enjoy rouble strength while it lasts

The rouble is the top performer in the emerging market FX space this year, rallying 6.2% against the US dollar year-to-date. A better global environment and higher oil prices, plus a credible central bank (implied 3m RUB yields at 7.5%) and a distracted Washington has all helped. But as our Russian Chief Economist, Dmitry Dolgin, writes, the Balance of Payments story is not quite as healthy as it may seem. Capital outflows in the first two months of the year offset 83% of the $22 billion current account surplus and warns of rouble vulnerability when the current account surplus is seasonally weak in 2Q and 3Q. USD/RUB may therefore struggle to break 65 on a sustained basis and those accounts with long rouble exposure should look to increase hedge ratios ahead of 2Q-3Q19, when both the current account and the return of the US sanction threat will weigh.


Read the original article: Brexit: Cautious on cable

Content disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more here: https://think.ing.com/content-disclaimer/

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD: Better bid above 1.1200 on upbeat Eurozone CPI

EUR/USD keeps the recovery attempt intact above the 1.12 handle following the release of upbeat Eurozone final CPI data while the US dollar extends its upside consolidation ahead of the US data. 


GBP/USD struggles around 1.2400 post-UK CPI

The latest recovery in the GBP/USD pair seems to lack follow-through, as the price struggles around the 1.24 handle amid in-line with estimates UK CPI figures and looming Hard Brexit concerns. 


USD/JPY consolidates in a range, comfortably above 108.00 handle

Reviving safe-haven demand underpins JPY and exerts some pressure. Renewed weakness in the US bond yields further weighed on the USD. The downside remains limited amid tempered Fed rate cut expectations.


Forex Today: US dollar corrects, US-Japan eye a trade deal, and Bitcoin bounces

US dollar reverses a part of Tuesday’s US retail sales data-led rally. US-Japan are working towards a trade deal by September. Bitcoin recovers, but remains below the 10k mark.

Read more

Gold clings to 21-DMA amid less active markets

Gold carries the 3-week old lower high formation forward as it clings to 21-day moving average (DMA) during Wednesday’s less active market hours ahead of the European session. Lack of major data/news during the Asian session limits market moves.

Gold News