A Subdued Start To A Big Week

The dollar has been confined to almost a quarter of a yen range so far today (~JPY103.65-JPY103.90).  It is in the upper end of the pre-weekend range.  It is bumping along a down trendline from the month's high near JPY104.40 on January 11. A move above it would target last week's high near JPY104.10 on its way to challenge the month's high (FXY).  The Australian dollar finished last week slightly below its 20-day moving average (~$0.7715) and continues to hover around it now.   It will likely remain rangebound today between two expiring options.  The first is at $0.7700 for A$520 mln, and the other is at $0.7750 for almost A$770 mln (FXA).  The PBOC set the dollar's reference rate at CNY6.4819, in line with expectations.  Of note, for the third consecutive session and the sixth session of the past seven, the offshore yuan (CNH) has been trading weaker than the onshore yuan (CNY). Since CNH trades somewhat freer than CNY so see this as a sign that foreign interest is waning (CYB).  

Europe

A judge's ruling could be handed down in the coming week or so on a crowd-funded case heard last week on whether Scotland has the power to call for a referendum on independence without the UK's approval.  Prime Minister Johnson maintains the 2014 referendum, decided by a 55-45 vote opposed to independence, resolved the question for the foreseeable future.  It appears that the UK's decision to leave the EU was a material change and polls show public opinion has swung toward independence. Scotland goes to the polls on May 6, and the Scottish National Party is likely to increase its majority.  There are two conflicting impulses regarding an EU-bid by an independent Scotland.  On the one hand,  several countries facing their own independence movements do not want to make it easier by setting such precedent,  but on the other, many would be happy to punish the UK.  

Indeed, the cost of leaving the EU, especially in an era marked by heightened competition between large economic areas, and India (poised to surpass the UK in GDP output) may dismember the once-United Kingdom.  A deal struck at the end of last month concedes more authority over Gibraltar to Spain (especially regarding entry and part of the Schengen Agreement).  Some even speculate about the reunification of Ireland.  One recent poll found that by a margin of 51% to 44%, the people of Northern Ireland favor a referendum in the next five years.  

The German IFO survey was disappointed.  The current assessment fell to 89.2 from 91.3, a little weaker than expected.  However, it was the expectations component that was more troublesome.  After the PMI and ZEW surveys seemed to suggest upbeat outlooks, the ZEW expectations component fell to 91.1 from a revised 93.0 in December (initially 92.8).  Note that Germany will report January CPI figures toward the end of the week, which are expected to be flattered by the value-added tax, and the first look at Q4 20 GDP, which is expected to be flat for the quarter and -3.2% year-over-year.   Separately, in Rome, the Justice Minister's report faces a vote starting in the middle of the week.  It is not immediately clear whether Prime Minister Conte can forge a majority for this largely procedural issue. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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