A familiar triumvirate moving in tandem

Once again we are seeing the trio of US rates, currency and stock markets moving higher, reinstating the theme which based on evidence last November, has limited potential given the sensitivity to higher interests on equity valuations.  In the first instance, the recovery in stocks is as yet a moderation in the heavy sell-off seen in the latter months of 2018, and allowing for speculative short covering in the broader indices coupled with a reallocation of funds at the start of the year through discretionary and sectoral bias, we may have a little way to go on the upside before nervousness begins to set in again.
While optimism over a US-China trade deal is also a major factor in the positive change in risk sentiment, we must not forget that the Fed is still reining in the balance sheet and financial conditions are very steadily tightening in the background.  In light of this, the latest pick up in Treasury yields will at some point impact on stocks, and/or start to ease off and set up another potential recovery in mid-curve Treasuries.  At current levels, we would expect to see some degree of caution from portfolio managers, but the US economy continues to stand out above its major peers, despite nominal growth levels in China still outperforming in the global economy.  There are greater concerns on the structure of China’s growth going forward, namely that infrastructure spending has comprised a large part of GDP and output over the last decade and that we are potentially nearing exhaustion in terms of effective viability and profitability of any fresh projects in the future.  China is trying to transfigure its economy towards internal consumption and naturally, this takes time.  Based on this broad-based overview on China, the US remains the go-to-economy at the present time and as a result, we are seeing a continued bid in the USD.
There is another obvious factor in that despite attempted repricing of Fed rate hikes this year, divestment away from the USD requires a viable alternative.  Given the malaise in Europe on a number of fronts, headlined by the economic downturn in Germany, we are unlikely to see a readiness to shift away from the greenback until we get a clear reason to do so.
A resolution in Brexit will naturally prompt a readjustment in the Pound, though this is easier said than done.  At present, the political quagmire parliament finds itself in leaves many to believe that the withdrawal process is very likely to be delayed, if not reversed should proponents of a second referendum get their way in the Commons.  That said, there is a growing realisation that a second vote is perhaps not as popular as it may seem, with many of the Conservative party keen to preserve democratic integrity and this is shared by a number on the opposition benches according to recent rhetoric.  The Brexit mood-gauge (for want of a better phrase) now looks to more inclined towards a deal in order to leave the EU in an orderly fashion, though the power remains in the hands of the EU for as long as the UK refuses to countenance a no deal Brexit – fact!
In Europe, the ECB meeting later this week could prove instrumental in the direction of USD through what is leading component in the DXY – the EUR.  Having failed to capitalise on the breach of range limits at 1.1500, we are once again resigned to a narrow range inside 1.1300-1.1500, where a breakdown of the lower level may well see the USD extend its quest for higher levels – the headline rate still providing to the lead for the rest of the major USD pairings in the current climate.  The Jan PMIs will be a major factor when released later this week – ahead of the ECB meeting in fact, so we expect this to be one of the key market catalysts this week in an otherwise lethargic market for macro-based instruments – reflected overwhelmingly in FX.

Forex Analysis: EUR/USD Technical Analysis

Bearishness in EURUSD continues, in this weekly chart price bounced off the 1.1490-1510 area and has now moved toward the uptrend line marked on the chart.

If the trendline breaks we may move lower toward the 1.10 level.

The trendline level could be used as support.

The downtrend which started at the beginning of 2018 is still intact.

1.13 has looked sticky in the past and looked like a base formation but if it breaks the lower low, lower high sequence continues.

1.1186 is the 61.8 Fib retracement level.

EURUSD seems to be oversold and the repricing of the rate hiking cycle by the Fed did point to USD weakness. The Gov. shutdown does not seem to have affected the USD as much as expected but Europe has its own issues with Italian and French budgetary concerns as well as Macron policy discontent in France. Stock markets have moved back to being risk on and the US-China trade deal could unwind some of the USD strength. Having said that its still a pretty bearish looking chart, keep an eye on the trendline and the consolidation low of 1.1216 for clues.

FX Analysis: Stalemate in the currency markets as the Dollar continues to stand out

Short on narratives, we continue to see the major currency pairs trading in extremely tight ranges, with the majors having threatened a breakout in response to the Fed repricing in the rates market.  That the USD looked to redress some of its strength from 2018 looked inevitable to some degree, but despite a shallower path of rate hikes projected, the fact remains that the greenback still offers yield as well as safe-haven status amid instability in the stock markets.
In the past week, Sterling demand has picked as market participants warm to the prospect that the UK parliament is in agreement on avoiding a no deal Brexit at the very least, even though turning this into something tangible whilst also trying to negotiate a better deal with the EU is still a mammoth task which risks political upheaval to some degree at least.  Nevertheless, we are seeing marked gains against the USD and the EUR, with the latter offering the more comfortable route in light of economic weakness in the Eurozone and domestic troubles in France leaning on the single currency.
Gains against the USD may well see us testing levels closer to 1.3000 to 1.3100 before we start to level off and consolidate, and lest we forget, the UK is trying to find agreement on the withdrawal deal, after which the real trade negotiations begin.  This is not over by a long shot, but as noted above, the market is short on fresh narratives and the recent developments in the UK – aided by Theresa May’s government winning a vote of no confidence – allows for some price adjustment in the Pound.
As for the EUR, markets need to see some moderation in the regional data to even begin to start considering some relaxation of pressure here.  One potential positive for the region has been the drop in Oil prices, which should feed into some degree of profitability in margins.  Europe is a major importer of Oil, and while waning global demand has been hitting exports, lower cost inputs could see some better figures on the horizon to a modest degree.  Against this, headline inflation which is the ECB’s single mandate will come under pressure, but as noted from the president, all eyes are on the core rate which has stabilised around the 1% mark.  If we see some modest upturn from current levels, then we expect this to improve sentiment on the EUR in the interim.
Hopes for a breakthrough in the trade talks between the US and China are looking a little more doubtful than they already were, so any positive carry-through sentiment for the Eurozone also seems to be evaporating again, especially after recent reports the president Trump is inclined to move ahead with auto tariffs.  Even so, we have been trying to base out again, and while it is too early to call the 1.1215 lows from last year a meaningful base, there is room to test the upside a little more without disrupting the overall medium-term downtrend from the highs seen in 2018.
Among the risk-correlated currencies, there still seems to be little to differentiate between the usual suspects.  Barring the sharp move in the first week of the year, we can see AUD/NZD moving in a very tight range with a modest upside bias more recently.  Ranges with the CAD are also contracting, and we have seen little else having a notable impact on the Canadian currency other than oil price of late.  The USD adjustment may well have run its course against these pairs, and judging by the cross rates, look set to underperform based on our negative outlook on risk appetite going forward.

FX Daily Early Morning Bullets

USD

* US Sen Grassley says president Trump is inclined to impose car tariffs.

* Grassley also says that govt shutdown may also delay trade talks.

* Chinese FDI (foreign direct investment) in the US falls significantly.

* Philly Fed manufacturing index due out this afternoon.

GBP
* PM May statement last night urged parliament to come together and find a way forward and a deal which appeals to all.

* Party leaders met with PM May last night, with the exception of Labour leader Corbyn who insists she rules out no deal first.

* At least 130 UK business leaders have urged parliament to seek a second referendum.

* UK Dec RICS House Price Balance falls to its lowest level since Aug 2012; -19.%.

EUR

* EU CPI out this morning – second reading expected to confirm a headline rate of 1.6% while the core rate sticks at 1.0%.

* German govt looking for ways to exclude Huawei from 5G auction.

* ECB’s Lautenschlager speaking later today – yesterday said not surprised by the dip in inflation, still sees economy within ECB forecasts.

AUD & NZD

* Risk sentiment will dictate price action in the related currencies – NZD the underperformer, now a cent off the recent highs.

* AUD also down as Chinese growth concerns will continue to put a cap on the commodity linked currency.

* Australian home loans for Nov fell 0.9%, though a drop of 1.5% expected.

CAD

* Also feeling the turn in risk sentiment, USD/CAD pushes back above 1.3300 this morning.

* Canadian ForMin Morneau says Brexit will not affect Canada but will impact on global economy.

* Oil prices holding their ground, though off the recent highs.

An interesting start to the year ahead – looking for the USD to stabilise and eventually soften but external factors will have a big say.

The key theme last year was that of USD strength in the currency markets, coming off the back of divergent rate paths against which the EUR and JPY were the primary targets, while GBP was also in the mix on broader fears over the withdrawal from the EU.  Looking ahead to 2019, we can expect a softer line from the Fed, and having moderated the call from 3-4 hikes next year, the base case scenario is now for only 2 as both the real economy is decelerating, and stock markets are seen to be a little more sensitive to financial conditions than were previously believed – at the Fed at least.  Lower earnings growth potential should take keep a lid on any recovery in stocks though, at the moment, forced liquidations will continue to dictate the risk mood which further supports the JPY and CHF, with the USD next in line.
Based on the Fed projections for this year, however, the outright view on the USD will be mixed in the first half of the year, with proponents pointing to the lack of alternatives given Eurozone weakness, Brexit uncertainty and a negative view on global growth which has taken its toll on commodities with the exception of precious metals.  It is our view that the market is underpricing the possibility that the Fed may well sit on their hands until the middle of the year before embarking on any fresh tightening, and we believe there is also the outlying chance that there will be no (Fed) move at all in 2019.  Much is dependant on the US data going forward, and we believe there is room for the USD to moderate a little more, though the usual suspects are struggling to garner support.  EUR/USD has again faltered at 1.1500 this week, and we would have expected more of the same had we seen a push back to 1.1600, so we have defined a key area for USD bears to overcome if the greenback is to materially change direction.
For the Eurozone to come out of the doldrums, we will need to see some relaxation in the trade tensions between the US and China, and if they do strike a deal, we expect to see some of this relief reflected in the EUR rate as exporters here will have raised optimism that the US will reciprocate with Europe also.
Brexit is very much a binary outcome in terms of how we come out of the other side of the meaningful vote later on this month.  Every indication suggests the current proposal championed by PM May will be rejected, but there is a majority in the House of Commons in avoiding a calamitous withdrawal with no deal in place, though how we come about this is unclear as it has ever been.  The obvious expectation is that Article 50 will be extended, though GBP will be sensitive to comments from the PM who insists the referendum result will be respected and the UK is leaving on the 29th of March.  Red lines have been shifted in the past and we can see Theresa May giving up further ground.  It is just a case of where and to whom, which is the question at this stage.
Commodities have front run the US stock market sell-off due to the stronger USD impacting on emerging markets, so it is no surprise then to see the related majors suffering at the hands of the greenback.  At this stage, the economic slowdown in China is going to keep the AUD tethered to the lows and possibly lower.  News of fresh stimulus in China is having little soothing effect, as the mining backed currency threatens a sustained move lower, though we suspect the volume is coming through AUD/JPY as the key stock market proxy.
While oil prices continue to attack the downside, there looks to be little reprieve in sight for the CAD.  We have seen losses across the board, with EUR/CAD rallying through 1.5500 to highlight the impact of risk sentiment as much as anything else.  Perhaps shades of early 2016 spring to mind when USD/CAD tore through 1.4000 as WTI slumped into the $20’s, and while this threat is present, it is unlikely we will see a move back to longer fair value levels around 1.2500.
Even so, the USD is not the Holy Grail of safe havens anymore.  While it has taken time for the JPY to catch up, the resilience and later resurgence of Gold prices should have given the market an early sign that USD dominance was and is slipping, though in current times, repatriation flow can wash out speculative positioning with ease – much as we have seen in the collapse of USD/JPY, which was pounding on the door of 114.00 only a few months back.  It would not surprise us to see levels closer to 100.00 at some stage this year, though the catalyst for this is multifold.  As above, the Fed may turn even more dovish than is currently perceived (probable), or we could see significantly larger losses in US equities – which have outperformed considerably in recent year, or we could even see the BoJ finally throw the towel in on their aggressive asset purchasing program.  We expect a change in language at the very least at some point, and we don’t discount broader inflation expectations in countenancing this.
One way traffic in the USD looks set to give way to a little more differentiation at the very least.

Outlook on the USD as Fed Funds set to have a stronger impact

By now, it should have become painfully obvious that USD demand is now predominantly a function of the weaknesses elsewhere, rather than expressing a positive view on the US economy. Naturally, it is hard to argue against a more favourable position stateside, but the US is not without its risks, which will be exacerbated every time the Fed decides to hike. The normalisation process was long overdue, and I argued that the Fed was perhaps a little too hesitant in tightening as Fed chair Yellen, at the time, wanted to wait for clear signals. Well they came through, and while the market focused on the twin deficits, the USD index was pounded into the ground and few could see a reason for the turnaround. And now here we are.

The market cannot get enough USDs, and at a time when the balance sheet is slowing contracting, the backdrop of year-end shortage maintains a relative bid in the greenback despite the prospects of a dovish hike tomorrow night. It would not surprise me if the Fed decided to stick on this one, and as per Jerome Powell’s rhetoric, watch the data. There is, however, one distinct drawback in taking this course of action, that being the perception of yielding to political pressure. President Trump makes no secret of his disappointment in the current Fed path, though come 7.00pm tomorrow evening, we will know through the dot plot whether there has been any moderation in how policymakers now believe the normalisation process should continue – if at all.

Anyone choosing to stick to the script need only look at the housing market, where yesterday’s NAHB House Price Index took another dip from 60 to 56, having fallen from 68 in the previous month to this. Domestically, neutral rates may be closer than the Fed thinks, and their recent commentary is certainly moving this way. Any suggestion of a pause tomorrow night will confirm Fed concerns, so in this respect, perhaps some of the outliers for an unchanged stance are a stretch at this point. The level of market dependency for direction from central banks has been raised significantly in recent years. so policy communication has to be dealt with kid gloves these days. In this regard, we do expect the Fed to direct market participants towards the data and coerce the mindset towards what is actually happening in the economy. It is long overdue.

That said, it is hard to steer the market away from the USD at the present time. The EUR is riddled with political instability in the region, exacerbated by the Brexit fallout, and the domestic data has taken a hammering from export-led weakness. The Pound, as undervalued as it is, faces a crisis of a magnitude not seen since the ERM debacle in the early 1990s and global trade worries continue to weigh on the majors closely tied to Asia. Australia, along with Canada also faces serious housing concerns as well as private debt thereon, and with Oil prices dropping like a stone, we cannot count on the traditional followthrough in the Canadian economy which has been a staple default scenario as a tailwind of US growth.

We still see room for a modest correction in the USD should the dot plot fall in line with market expectations. Whether this can effectively mark a more significant turnaround at this stage is in the balance. It will take some significant improvement in some of the USD’s major counterparts for this to develop, and this is clearly not going to happen overnight. The JPY and CHF look the obvious choice in the current climate, though both the BoJ and more so the SNB will have something to say on this, so the playing field is a bumpy one, to say the least. EUR/USD is making all the running this morning alongside a reluctant push lower in USD/JPY. 116.00 and 111.35-30 are levels we are watching for in either case.

(EUR/USD Technical Analysis)

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

Technicals:

  • 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.