Market Drivers December 10, 2019
Europe and Asia:
Currencies were very quiet on the second trading day of the week with most of the majors stuck in 20 pip ranges during Asian and early European dealing.
With all of the event risk backloaded to the end of the week, markets are content to simply mark time for the time being.
Cable continued to inch towards a test of the 1.3200 as traders remained confident that PM Johnson would cruise to a victory this Thursday. As we noted before, cable appears to be setting up for a classic buy the rumor sell the news set up and any move above 1.3300 will most likely be faded.
Elsewhere both Kiwi and Aussie drifted lower as risk flows turned negative in equities but so far the selloff has been contained. We remain highly skeptical of the recent rally in both as we believe that the Phase 1 deal is unlikely to be inked soon despite endless assurances to the contrary. More importantly, US/China tensions could escalate quickly if the Trump Administration puts tariffs into effect this weekend, although the more likely scenario is some sort of delay as a gesture of goodwill in negotiations.
Regardless of the political machinations data in both economies continue to disappoint and despite the nonchalant attitude of both RBNZ and RBA we believe the markets are too complacent about the state of monetary policy in both and that is likely to lead to lower prices in Kiwi and Aussie as the move towards 2020. For now, forward progress has stalled in both and some corrective moves are due.