Market Drivers December 4, 2019

• Cable continues ripping
• AU data misses
• Nikkei 0.71% Dax 0.01%
• UST 10Y 1.78%
• Oil $58/bbl
• Gold $1474/oz
• BTCUSD $7362

Europe and Asia:

• AU AUD Retail Sales 0.0% vs. 0.3%

North America:

• No Data

Generally quiet markets in FX today with very little on the global economic calendar to move pairs, but cable continued its climb higher hitting a high of 1.3147 in early London trade as enthusiasm over a Tory win helped fuel the rally.

At this point, the market appears to have made peace with Brexit and is assuming that Mr. Johnson will achieve the majority needed in Parliament to ram the deal through. The Europeans for their part also appear to have accepted the outcome and today’s FT reports that Brussels is preparing for swift negotiations to get the deal done.

Assuming Mr. Johnson wins, a lot will depend on his flexibility in negotiations. If he continues to drive a hard bargain EU may walk away from the table and leave the UK without any deal at all. The market is betting on an opposite scenario namely that Mr. Johnson will make a deal that could give up the Irish border issue and that will accept many EU regulations as part of a trade pact.

The run-up cable is essentially a bet on the fact the UK will be out of EU in name only, but practice will remain a key member of the market adhering to most of the block’s trading rules while having no political say in how those rules are set. For now, that is the dominant theme in the market and the rally in the pair may culminate in a blow-off top near the 1.3300-1.3400 level on election eve, but once the festivities are over the negotiation headlines will take over and it will be interesting to see if Mr. Johnson moderates his tone assuming he wins a majority a week from now.

Elsewhere, newsflow was sparse but kiwi rose again on RBNZ new plan for bank capital buffers while Aussie dipped lower as retail sales once again missed their mark coming in at 0.0% vs. 0.3% eyed. The AUDNZD cross continued to drift lower and some analysts have suggested that the pair could hit 1.0200 before the yearend, but the pair is grossly oversold and the market may be overestimating the relative strength of New Zealand economy which could lead to an adjustment back to 1.0500 as some profit-taking kicks in.

Overall the day is likely to be quiet – assuming to no fresh news on the trade front – as markets await the NFP data tomorrow which could make or break this risk rally going into the final weeks of the year.