Daily Brexit update: No red lines for UK blue chips today

Theresa May is talking to every top UK or EU politician but Jeremy Corbyn.

Daily Brexit update: No red lines for UK blue chips today

Theresa May’s talks with top politicians continue, though still not particularly the ones that could truly facilitate the beginnings of a breakthrough. Labour leader Jeremy Corbyn continues to keep his distance due to continued prevalence of ‘red lines’, leaving only lower-ranking shadow ministers and heads of smaller parties to fill the gap.

By Friday, the PM may have seen most of those because she was down to holding meetings with select senior ministers ahead of a weekend at her official retreat Chequers. There, she is set to call further EU leaders after conversations with Germany’s Merkel and Rutte of the Netherlands. Meanwhile, Downing Street ruled out a snap election. Not that anyone particularly expected the government to call one.

What was lacking on the least eventful day in Brexit politics this week was any clue on the contents of Theresa May’s alternative approach, a ‘Plan B’ that is meant to replace the ‘Plan A’ that was roundly rejected days ago. Ahead of a weekend of speculation that could certainly bubble up under the pound when European trading resumes on Sunday night, the relative news vacuum was a queue to take profits.

How this affects our Brexit Top 10 markets:

GBP/USD: Waning rather than collapsing, cable continues to consolidate a 2.7% hike over the space of 48 hour between $1.2668 and the heavily symbolic new range top of $1.3000 dead (according to Reuters data) notched at 8.00pm last night. The downswing has sliced through at least two obvious supports, $1.2929 and another, almost exactly on the handle. There are signs that the rate will respect the 38.2% retracement of the up move as support, though it’s clear widespread squaring-up is occurring, particularly given the timing. Any breakdown of the confluence around late $1.28s tends to draw attention to lower ones - of $1.2820-30, before the $1.28 handle, which is 5 pips above the crucial 61.8% retracement mark. A resumed advance would be more convincing above $1.2929.

Technical analysis chart: sterling/U.S. dollar – hourly intervals [18/01/2019 19:21:13]

Source: Refinitiv/City Index

GBP/JPY: Not even the ‘risk-on’ atmosphere is helping sterling’s yen cross, backing the view of a widespread retreat by the bulls. After such a protracted battle around ¥140, it will be interesting to see the result of a move to near there. The rate is at ¥141.42 as I write, having topped at ¥142.21 on Thursday. It’s short of clear resistance at ¥142.75 but up 3% since 2nd January.

EUR/USD: The worst performing currency of the month remained capped by ever louder echoes from the ECB suggesting the first post-QE hike could be pushed into late 2019 instead of the autumn as previously thought. Still, EUR/USD looks to have bottomed at $1.1350, a 14-day low. It’s at $1.1366 into the weekend.

EUR/GBP: Sterling’s single-currency rate is the star performer of the week, looking to post its best one since November 2017. For one thing, it’s a reminder that sterling’s fall vs. dollar is partly based on relative, possibly short-term greenback strength, for another, traders appear to be attempting to price much improved economic positioning versus the Eurozone predicated on a less-corrosive Brexit. The pound must head to and take out mid-November EUR/GBP spike lows on 0.865/6s to corroborate this week’s sentiment. If not, the rate will return to 0.888 euro resistance initially, eyeing 90p eventually.

UK 100: Sensitivity of huge FTSE resource producers (especially miners) to an anticipated China downturn is well flagged, so not only does the index’s underperformance of large-cap G7 stock markets make sense, but solid rebounds, like Friday’s, on news linked to a possible breakthrough in the U.S.-Sino trade dispute, also makes sense. FTSE closed up 2% but only up 0.9% this week compared to say, Germany’s DAX which tacked on 2.6%  

Germany 30: The German benchmark is also due a break and duly got one amid global stock market cheer, for a first consecutive rise since the end of December.

Lloyds: The heaviest-weighted of a clutch of domestically focused stocks to rise to the top half of the FTSE on Friday on brightening political prospects. It’s 3.3% jump was the biggest so far this year.

Barclays: Barclays, straddling the UK and (mostly) the U.S. rose 3.4%.

Shell: Another biggest one-day rise of the year, up 2.5%.

BP: This oil major shrugged off a JPMorgan target price cut to rise 2.4%.

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