‘True Risk On’ Back In Vogue, Brexit Vote Awaits

Currency Strength Meter


In what was a low key affair, the Pound was the biggest mover. The Sterling tops the gainers’ leaderboard as UK PM May secured further concessions from the EU, while a ‘true risk on’ microenvironment led to a major deterioration in the pricing of the Japanese Yen as well as the US Dollar. Despite the renewed optimism on Brexit, the buying flows in the Euro were very limited in comparison. The Australian Dollar and the Kiwi did relatively well while the Canadian Dollar fell somewhere in the middle.

Main Narratives in Financial Markets

  • UK PM May has secured legally binding changes that strengthen and improve the Brexit withdrawal agreement after the Strasbourg meeting with Juncker. Pound soared on the news.
  • Despite not being a clear catalyst, stocks in the US posted very strong gains, with the S&P 500 ending about 1.5% higher while the Nasdaq Composite rose by over 2%.
  • US Trump administration has released the $4.7T budget proposal for the fiscal year 2020, with the spending up almost 5% from the 2019-2020 budget.
  • US retail sales for January, released with a delay due to the US government shutdown, came upbeat at 0.2% vs 0% exp while the core reading was even better at +0.9%. With regards to the prior month data, it was revised lower at -1.6% vs -1.2%.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO - Risk On Risk Off Conditions

The massive gains in stocks, combined with the sharp selling of the DXY late on the day (driven by Brexit headlines), alongside the recovery in global yields with the US 30Y bond as the bellwether, classifies the current microenvironment as ‘true risk on’.

From a weekly perspective, which is the time horizon used to interpret the macro flows, the spike in equities has been so strong that even the 5-DMA slope has now turned positive, although this is still not backed up by fixed income, with the macro slope in yields still down, while the macro tendency in the US Dollar remains bullish.

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The Daily Edge is authored by Ivan Delgado, Head of Market Research at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth ...

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