FOMC Preview

Midweek, the FOMC meets to deliver their latest monetary policy announcement, where the odds continue to favour a 25bp hike – the fourth move this year. This would take Fed Funds to 2.5%, a level which touches on the lower end of the neutral range which has and continues to be under question. Consequently, the release of the latest rate projections through the dot plot will be of greater interest to the market, having tempered expectations for 2019. The odds for just one move currently stands at a little over 50%, reined in from the forecasts that the Fed will hike at least twice through next year.

Fed chair Powell has clearly stated in recent addresses that policy is data dependent, and while we would expect markets to adopt this perception at all times, recent years have seen a heavier reliance on forward guidance, so we may also see some changes in the statement which may be designed to steer the market towards data inputs rather than measuring sentiment around the general theme of ‘further gradual rate hikes’.

(DXY Daily Chart)

DXY Daily technical analysis 171218.png

Starting off the week, we have seen the USD coming under a little pressure, and this may be little more than some modest catch up with the rates markets. The latter have been pre-emptive in accommodating for the recent change in rhetoric from policymakers, so there are risks to a surprise on the hawkish side if the dot plot sees little change to reflect market sentiment. In this instance, equities are likely to come under further fire, with the major Wall St indices already teetering on the edge at the levels we are at present.

The USD is still de facto a default currency, gaining on the weakness of others, so the impact of the outcome is pretty binary on how the Fed communicates any endorsement (or not) to how the rates markets are pricing the future rate path from 2019 onwards.

(DXY Weekly Chart)

DXY Technical Analysis 171218

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Currency markets backed into a corner

c668d1a3-9f0d-453e-a4b2-d5ef832470c5.jpgIn past weeks, we have seen the USD surge fizzling out, and depending on one’s measure of what a strength and weakness, we can see that the greenback is losing some of its shine, however temporary this may prove to be.  Even so, our fundamental view that with the DXY at these levels, the key feature of the USD is that it offers the only attractive option away from the risks attached to all other currencies.  With the Fed path through 2019 now thrown into doubt, we can see that despite uncertainty over the EUR due to multi-political factors and GBP with Brexit, there is some room for relief, though, at this stage, we are not getting our hopes up for any major recovery in either case.
For EUR/USD, there seems to be a never-ending interest to sell ahead of the 1.1450-1.1500 zone, and unless this can be overcome, we are still vulnerable to printing fresh lows, though the prospect of a material fallout is looking slimmer by the day.  As weak as the Eurozone data is at the moment, if the US and China can resolve some of their differences to alleviate fears over global trade, then the major European exporting nations can hopefully regain some confidence and add to poor growth prospects.  Only this morning, we heard Germany’s IFO institute downgrading 2018 GDP from 1.9% to 1.5% while 2019 is seen worse still at 1.1% – also previously 1.9%.
While Brexit continues to hang in the balance, GBP will also remain under pressure – also adding weight to the EUR – and the heavy discount to longer-term fair value will continue.  On Tuesday morning, we saw the announcement of the leadership challenge pushing Cable back under 1.2500 again though notable was the support seen here.  For now, this could have been anticipation that Theresa May would ‘win’ the contest – which she did – though the recovery back to more familiar levels is facing plenty of resistance into 1.2700.  Unless the EU offers some material assurances on the backstop, the deal on the table will not get the votes, so no deal or no Brexit are the options for MPs to consider on all sides of the House. The ERG will look to avoid any threat of the latter, though whether this will be used as bait to get them to back the current proposal is another unknown factor, but potentially a prop for GBP.  Anything is possible at this stage, so downside momentum has eased off at the very least.  We also saw EUR/GBP fended off 0.9100, though sentiment is harder to gauge from this cross rate given the single currency’s own detractions.
Moving onto the JPY, the market seems happy enough to go along with the BoJ’s assurances over maintaining ultra-loose domestic monetary policy.  Despite the sell-off in stocks, the divestment story continues to play out, and USD/JPY stays in the lead as we continue to see dip buyers propping up the exchange rate.  At the point, when these outflows show any signs of fading, we may see some fresh downside materialising here, but for now, any expectations of repatriation seem to be slim given investors switching to US Treasuries if scaling down on stocks and related ETFs.  It is worth considering the inflation backdrop, however.  If we see global disinflation taking hold – oil prices just cannot recover at the moment – then the relationship to consumer prices in Japan could be a potential flashpoint for JPY strength, especially with oil importing nations (much like German) benefiting from profitability levels (assuming core rates hold up).   For now, we continue to press for 114.00 despite notable resistance seen well ahead of this.  A move above 115.00-50 paints a completely different picture despite our conviction over a JPY turnaround in coming weeks, though more likely months.
Finally, USD/CAD has managed to push on to new highs through the 1.3400 mark.  As a level, 1.3500 is purely psychological at this stage, but enough to contain the last upturn in the cycle.  Oil prices have made an impact, and the lack of recovery in WTI is proving CAD negative for now.  Against this, domestic prices (Western Canada Select) have risen sharply, but to limited, if any effect on the exchange rate.  Pipeline issues continue to offer a modest input to headline GDP, though on the domestic front, strong job gains as reported in the employment report last week suggests consumption can offset some of the negative factors weighing on the economy such as household debt levels as well as a house price correction in the major provinces.  Technically, 1.3625-75 is a strong area of resistance should risk shocks push us up here and this could include another sell-off in Oil.

AUD/USD Technical Analysis

What can we expect from AUD/USD?

AUD/USD Technical Analysis


  • Could be at the start of a new Elliott Wave pattern to the upside but a break of .7400 is needed to confirm
  • .7160 is an important support level if it breaks this could suggest trend continuation
  • RSI has broken lower watch out for a hold above 50

AUD/USD Market Profile

On the market profile chart, the area between .7157 and .7018 looks very congested. We have since auctioned higher and ranged between .7157 and .7393. If we saw a bearish NFP result we could revert to the mean value area of .7254 or possibly higher. If the market is net bearish this could be the area where a lower high is formed. In a bullish view, only a break of .7293 would confirm a wave break higher.

Fundamental backdrop

Across the currency spectrum, and not just against the USD, we have seen a weakness in the AUD in the past week or so, with domestic matters weighing on the currency, in particular, this week. The RBA meeting threw up few surprises in keep rates unchanged and maintained the balance of economic pros and cons within its statement. In essence, the RBA still sees the next rate move as up, though as has been the case for some time now, it is a matter of timing and widening differentials with US rates have largely dictated losses in the spot rate. In the past month or so, however, AUD – along with the NZD – has recouped some ground against the greenback, though this has been more a function of its oversold status and in the time it has been achieved.

Hitting highs close to 0.7400, AUD/USD resistance has been largely based on the global factors surrounding the threats to global trade. As US actions against China have threatened demand for Australian raw materials, so the longer term negative bias is set to contain the upside. There was been some periodic mismatch in the sensitivity to data – for example, the relief from the near term truce between the major economic powerhouses over the G20 weekend, though as above, domestic matters are now weighing on the AUD, with this week’s Q3 growth coming in lower than expected at 0.3%. Trade data was also lower than forecasts, though both cases argue for continued expansion – perhaps not as much as expected, though enough to battle through tough times in the current climate. We have also seen commodity prices picking up and finding some resilience despite a stronger USD, so this should suggest a level of underlying demand as the world ‘ticks over’.

Australia may be some way off raising rates from current levels, but at this stage, some of the alarmist calls for a rate cut seem out of place in our view.

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An interesting 24 hours in the House of Commons – Pound bears take note. 

By the title, you could be excused for thinking that I am about to trot out a host of reasons why the Sterling should be considered a buy, though, at this stage, it would be premature (amongst other things) to fight the negative sentiment which is predominantly based on high uncertainty. That, by and large, has not changed, and into the meaningful vote on the current EU deal next week, it is hard to envisage any material confidence in the UK’s position and indeed Sterling.
However, last night’s series of motions against the PM ended with parliament voting in favour of greater powers for the Commons as a whole, to engage in the Brexit process if (or when) the deal is voted down on Tuesday.  Having reiterated that this would risk a no deal or no Brexit, the focus has naturally been on the latter, where only a second referendum, either through a turnaround by the current government or after a general election could facilitate this – assuming the electorate did not vote to leave again(!).
Odds for (effectively) canceling Brexit have naturally risen as a result, and those with an eye on the markets during last night’s session parliament would have noticed the bump higher in the Pound once the last motion (mentioned above) was won by a narrow majority, as were the previous two.  At this stage, exchange rate stability is the best we can hope for with the modest recovery a function of the increased odds of no Brexit at all – however that comes about.
Not that GBP was materially affected over Tuesday’s, as some of the cross rates showed. GBP vs the commodity currencies and most notably CAD were an example that the push lower was engineered to a larger degree, with US markets taking full advantage of thin markets to push for levels as we have seen in many instances in the past.  It would not surprise me to hear that the BoE will be continuously on red alert in order to avoid another flash crash to the order that we saw in September 2016.
Looking at the GBP/CAD chart, we can see that no fresh lows were forthcoming, and indeed, vs the EUR, we also saw a limited move which ran out of steam despite taking out some resistance above the 0.8900 level.  Cable, therefore, looked to be the solitary target, having repeatedly tested the 1.2700.  Well, we gave way and touching on 1.2660 again, we saw momentum swiftly fade which leads us to believe that there is significant demand at these levels if not lower.  As Raj will show you on the weekly chart, 1.2500-1.2600 looks pretty significant.
GBP/CAD Technical Analysis
From a longer-term perspective, the argument for a higher GBP rate at this stage is all based on longer-term valuations, which on OECD/PPP measures lies closer to the 1.4000 mark.  This narrative was given credence earlier in the year, though largely off the back of a weaker USD, which as we know is now king based on US economic supremacy as well its safe haven status based on liquidity first and foremost.
GBP/USD technical analysis
Over the coming week, we expect to see plenty of twists and turns within parliament, though it is worth noting that there was an overriding consensus within the Commons to avoid a no deal outcome.  Whether this can translate into something tangible rather than purely ideological remains to be seen, though does take a chunk out of the ‘hard Brexit’ mantra which has been damaging on the Pound.  For this reason, I will take issue with some of the projections of a Sterling rate falling to new cycle lows, 1.1500, 1.1200, 1.1000 and parity all cited by some corners of the market and suggest that it will take a monumental and determined effort by the UK parliament to lead us into a cliff edge Brexit which would lead to a capitulation in Sterling to this degree.  The political will is clearly there to avoid this.  If politics is driving GBP, then perhaps we could see probabilistic factors ‘repricing’ exchange rate levels a little higher.

USD/JPY Technical analysis

USD/JPY has recently broken lower following the recent sell-off in equities markets. There are some key signals to wait for before the downside move can be confirmed. Obviously, we have had the shooting star candle a couple of days ago but the trendline break will be significant. Elsewhere, the price has made its first lower high and a break of 112.30 would make a lower low.

The weekly RSI trendline has broken to the downside. If we see a confirmation of the move lower, look out for the 111.78 support level. The chart below then shows lower down the 50% Fib confluencing with some key previous support and resistance levels.

Zoomed in hourly chart of the trendline: as you can see if the trendline was on your radar it offered significant support.

US-China trade tensions do not change the fact that cheap money is drying up

While the stock markets are poised for some strong gains in the aftermath of the G20 meeting, it is – as ever – best to stand back and look at the overall economic landscape on which to base the medium-term outlook.  It was, as some would have anticipated, a natural reaction to what some perceive as one less risk factor to contend with, even if it is only a temporary ceasefire where the US has seemingly agreed to hold off raising tariffs on Chinese goods as long as China agrees to buy more goods from the US. While this is all well and good for the time being, we cannot help but think that stocks are all too quick to price in the best case scenario, which then suggests that any upside is dependent on global growth and the financial conditions we are operating in
On the latter point, the Fed is still shrinking their balance sheet, and while the prospect of a shallower rate path is also cause for some near-term relief, the undercurrent of quantitative tightening is and will not go away.  Maintaining the level of valuation in stocks in a tightening environment is what is now at stake and portfolio managers will be seriously considering value in long end Treasuries at over 3.00%.  For the brave, fixed income yields look attractive in countries such as India, though I can see little sign that the markets are ready to differentiate.  EMs are, therefore, still largely viewed as a positive ‘risk-bloc’ rather than considering the individual components.
How this translates into macro FX is uncertain as yet, and made more confusing by the widely acknowledge of breakdowns in a host of traditional correlations.  The JPY has been particularly resilient in times of stock market stress, with the USD rate pushing higher on the narrative that the greenback is both safe haven and yield play.  No surprise then that the persistent move higher has been relatively unscathed, though there are clear signs that we have exhausted the upside into 114.00.  At this stage, repatriation risk looks underpriced, and even if we see Japenese investors switching to fixed income, the argument for the yield play also falls down.   Consider that the BoJ will continually reassess their uber accommodative stance, and note the perfect recipe (storm) for a material adjustment in JPY levels.
Moving onto GBP, tomorrow week sees the House of Commons convening for the vote on the latest EU deal.  By latest, the EU will have us believe that this is the final deal they are prepared to offer the UK, so the slim prospect of this getting voted through on the 11th sees the market trying to price in a no deal outcome.  In this instance, we still expect to see both sides renegotiating on a lesser scale (so to speak) on an arrangement which will avoid the chaos following a ‘cliff edge Brexit’.  The free flow of goods and maintenance of supply chains benefit both the UK and EU, so it is hard to imagine this will be sacrificed in the name of political ideology – as naive as that may sound!
Technically, it is hard to put any faith in levels on either EUR/GBP or Cable, but we note that since the recovery from the flash crash 2 years ago, 1.2500-1.2600 has established itself as a key area of significance.  If breached, however, we must assume the lows closer to 1.2000 will be tested, though as yet, we note a rebellious tone once we get to 1.2700.  EUR/GBP is mirroring this in the low 0.8900’s as we can see with the numerous failed attempts to push above here,  resulting in (as yet) shallow dips.
This may be down to the EUR’s own weaknesses at the moment.  Aside from the EU’s ongoing battle to try and rein in some of Italy’s spending plans, Eurozone growth continues to cause nervousness over the medium term.  Oil prices have also dropped significantly to suggest headline inflation is heading lower, yet if the core rate moves in the opposite direction, we could see this having an outsized positive impact further down the line.  It is hard to argue the point at this stage, though at the present time, it seems that there is little more we can ‘throw’ at the EUR, so there is also evidence that on longer-term valuations, we may be close to, if not already have set a near-term base just ahead of 1.1200.  Should we push above 1.1500, better still 1.1625, then we can be a little more confident in suggesting a period of wider consolidation which may or may not result in an eventual move towards 1.1800 again.
Naturally, this will also depend on how US growth develops into 2019.  It is fair to expect
a deceleration in the pace of expansion, and as we have seen with comments from Fed chairman Powell, data dependency is paramount from here and we expect the USD to be a little more sensitive to any softness in the numbers.   Based on the heavy positioning in the greenback, it is also fair to assume some profit taking over the next few weeks, though we cannot discount the reluctance to do so ahead of the FOMC meeting later on this month.

USD pullback post-Powell does not deflect from weaknesses elsewhere

There was great anticipation ahead of Fed chair Powells speech in NY last night, where there were concerns that he may have attempted a tone down in the rate path going into 2019. Some will argue that this came off the back of political pressure, though some of the recent data show that aggressive USD buying to reflect economic outperformance in the US looks overstretched. Looking across the spectrum of major currencies, we can see the likes of AUD and NZD have redressed some of the excessive positioning in recent weeks, though all USD rates moved in tandem and to a similar degree in the North American session last night.
Rather than jumping in and assuming these moves would continue, we thought we would wait to gauge the reaction from liquid markets through Europe this morning. Price action this week will be heavily distorted from month-end flows, where USD demand is and was anticipated in light of rebalancing requirements after heavy losses in US stocks this month. Once the dust settles, we may have to wait until next week to get a true gauge of how current positioning will be affected by the latest Fed communication, with the benchmark 10r Note only now testing the $3.00% mark. In light of this, we would have anticipated a little more downside in USD/JPY specifically, though correlation traders will likely have been mesmerised by the relief rally in stocks which saw the Dow ramp 600pts, on par (in percentage terms) with the leading S&P. The NASDAQ regained some 200pts, though we should have anticipated the positive impact on stocks however temporary it may.

Into the weekend, fears over the Trump-Xi meeting should see some risk pairing, though it is now clear to see that equities need all the help they can get from any form of accommodation, and last night, Powell’s address proved that in spades.
In the background, the Fed is still (albeit very gradually) shrinking its balance sheet, so this slow retraction of cheap money should start to erode any near-term bonhomie seen in stocks. Eventually, we expect this to start impacting on the traditional safe havens such as the CHF and JPY, though I maintain that the latter is largely a case of repatriation risk as markets finally realise the US stocks are no longer the Golden Goose which keeps on giving. Naturally, emerging markets will even more vulnerable as USD liquidity contracts, so USD demand is also likely to hold up to some degree, but it is a matter of picking your targets. As above, we may see those currencies which have gained ground start to suffer.
More immediately, the EUR and GBP are easy targets for those looking to maintain a level of positive USD bias irrespective of the interest rate backdrop. Strength in the greenback is as much above safety as well as perceived demand from those burdened by USD based debt, so we expect to see a level of resilience in the face of some potential walk back from the Fed.
EUR/USD looks set to trade water in the 1.1200-1.1500 range in the meantime and we are far from comfortable in calling for a base in the leading spot rate as yet, with growth in Germany suffering from low export demand with the auto industry in the spotlight at the moment. Should we see the US offer an olive branch to the EU, then we could see a little more optimism here, but for now, sellers are ready and waiting to pick off rallies with pre 1.1400 a clear example this morning.

BP will remain pressured into the parliamentary vote set for next month. Few if any believe the current deal can pass in its current form, and at the very least, we expect the DUP to maintain their pressure on the PM to seek an alternative route. The threat of retracting their current confidence and supply agreement will further embolden the hardliners within the Tory party. Labour and SNP continue to argue for a second referendum as they see current membership more favourable than any proposed deal, and GBP traders smell blood once again as pressure on the 1.2660-1.2700 zone remains vulnerable, to say the least.
It is worth noting that speculative positioning seems relatively light based on the data at hand, and may explain some of the hold up seen ahead of 1.2700 in recent sessions. EUR/GBP, however, looks to be a more appealing play for a potentially bearish outcome, with growing calls for parity in the event of a disorderly EU withdrawal. Neither side wants that, no one wants that, but strong political red lines show a lack of flexibility which continues to heighten fears of a breakdown in the UK-EU relationship.

FX Week Ahead: Fed chair Powell could rock markets this week

The story that the Fed could rein in their rate profile next year has been gaining traction in recent weeks, and it has been hard to ignore when there have been tentative signs in the US data that a higher rate environment is impacting on the economy. The recent drop seen in the NAHB housing index gave the markets a sharp jolt, though, before this, the ISM PMIs also suggested tighter financial conditions are starting to rein in business activity. It would have been somewhat short-sighted to believe that with higher rates and an ever-strengthening USD, there would be no impact on the growth dynamics.

Now we have a situation where the Fed could start to reassure markets that data dependency prevails and that a rigid path of normalisation should not be counted upon. This has tempered the outlook in short-term interest rate futures market and may well prove to be supportive on the mid-part-longer end of the yield curve, though into Dec, we may see the strongest reaction in the USD itself. Fed chair Powell is due to speak on Wednesday evening when he gets the chance to prep markets for any potential softening in forward guidance. He will be preceded by vice chair Clarida on Tuesday.

This week, however, we are looking to another month end of USD demand, as rebalancing requirements are pointing this way given another bout of heavy losses on Wall St equities. The return of stock markets today has seen a rebound in all the major indices, though, for material traction, we still feel the Fed will have to offer some solid indication of restraint. Indeed, today’s rally may be a case of pre-empting this scenario, as well as technical levels and an oversold status in the short term adding to the near-term relief.

In line with this price action, USD/JPY as wasted no time in pursuing the upside as we make a beeline for the mid 113.00’s if not 114.00, though the Fed meeting next month is a double-edged sword for the JPY spot rate if yields start to come off again – recall 10yr testing 3.00% and dragging USD/JPY back through the mid 112.00’s before basing out around 112.30 or so.

Elsewhere, EUR/USD will have a task and a half to push back and sustain the 1.1400-1.1500 area. Eurozone data gives little incentive to price in higher levels in the EUR just yet, with some possible flexibility from Italy in its budget considerations providing the modest relief early on Monday morning.

The EU Summit’s agreement of the withdrawal text and the declaration were also cause for some EUR upside, just as it was for GBP, though the latter lacks conviction either way as investors choose to sit this one out on the sidelines until we get more insight into the balance of sentiment in parliament over the deal. Cable support at 1.2790-1.2800 is the closest prop for now, while 1.2925-30 was evidently a push too far after last week’s initial response to the deal PM May brought back from Brussels.

Risk sentiment may have stabilised in Monday’s session, though this has failed to translate into any upside in the AUD or the CAD, with oil prices also edging back up again. As a result, we can only assume market players are looking lean on the anticipated month end flow expected into Friday, which could see a push for new USD highs over coming days.

EUR/USD Technical Analysis

Above is a weekly EUR/USD chart – I have outlined a potential bullish scenario but some conditions have to be met in order to confirm the theory:

  • Looked like we had a rejection on the weekly candle last week
  • We now struggle at the 50% Fib retracement that is acting as resistance
  • On the downside, we failed to reach the 1.27% extension and 61.8% retracement
  • A move weekly close higher could confirm the bullish sentiment
  • Right now we may be at an ABC correction after the 5 wave Elliott pattern from 1.0340 to 1.2555. If this is the case we could be in for a correction higher

The daily chart contradicts the view on the weekly:

  • The daily chart has turned higher but in recent days the USD has resumed control
  • A firm break of 1.1545 is the confirmation needed to back the weekly Elliot Wave theory
  • We are in a phase of lower lows and lower highs
  • This extension lower stopped nicely at 1.12 area which is also the 61.8% retracement level
  • There is also a resistance at the trendline running from the start of 2017 to the last wave low
  • A break past the 1.1550 would confirm the move higher but it may be resisted

All in all, there is some traffic in the way but the risk/reward looks attractive. I must stress the conditions have to be met before the outlook changes to bullish. Each time the sentiment looks like it’s about to change another wave of USD buying comes in so keep risk tight.

No surprise to see the Dollar softening as tighter financial conditions forced upon by the market – again!

Since the end of last week, we have seen the narrative that decelerating (rather than fading) economic momentum at this stage in the US has, and may well continue to lean on the USD in the near term. Something we have been keen to stress in the last month or so is the combined effect of a tightening Fed and a stronger USD, which then start to prove restrictive – or less accommodative as the Fed would put it. It’s not rocket science, but we have seen this time and again. As a function of the market overextending fundamental themes, we have therefore reached a point where the Fed now have to actively consider whether maintaining their current rate profile is ‘prudent’ – a term used by Harker last week.

Even so, the USD rally is not all about yield differentials, though naturally they come into play and provide an added draw for the greenback. With little appetite to carry risk elsewhere, it’s default status is as strong as it has ever been. Europe – or rather the EU – is doing little to soothe investor concerns with its disapproval of the Italian budget, while trade tensions have been hurting all major exporting regions. It is pretty clear what is hampering GBP at the moment, so we won’t go there! Asia’s current malaise is clouded by worries over a potential slowdown in China, exacerbated by worries over private debt, though with focus on the impact of US tariffs. There are signs that this is also feeding into the US manufacturing sector, as highlighted by the ISM surveys. For now, we will concede that protectionist measures are effectively a lose-lose situation, yet with the ultimate loser being the consumer, it stands to reason, that domestically generated growth (rather than export-focused) based economies will eventually suffer also. We need to listen to some of the doomsday scenarios on UK inflation should we settle on WTO rules!

Yesterday’s NAHB house price index also raised some eyebrows as we saw a drop from 68 to 60, so with the US being far from immune to personal debt dynamics, we expect to see a challenge – to some degree – of the USD as the out and out safe haven. Liquidity is a huge draw, but there is room for some differentiation here and the resilience in Gold price leads me to believe that we could start to see this gain traction soon.

Adding to this view is the all too modest pullback in USD/JPY. It’s equal resilience to the downside has also endorsed the USD in times of flight to safety, coerced by the BoJ’s insistence that it will keep printing JPY in order to get inflation moving. It’s not working – and why would it when we continue to see the divestment mill pushing funds into higher yielding overseas vehicles, and in its obedience, the market seems to be more inclined to tow the central bank line.

In conclusion, the signs are there that the USD seems unlikely to give up any material ground just yet – USD/JPY is telling us that. For the EUR to gain any serious traction back towards longer-term fair value will require the EU to try and calm matters with Italy. Red lines are all over the place, however, as we have seen in the Brexit saga, so political ideology (intransigence) continues to weigh on sentiment. Even so, just as we saw the market trying to squeeze blood out of a stone at 1.2500 earlier in the year, we may well be seeing the same ‘destructive’ pattern in ignoring current valuation levels in the USD. Volatility can be a positive ‘pressure valve’ (if you like), in smoothing out exchange rate averages over time.