FX round-up: Macron interview pushes pound towards first Fibonacci resistance
By Alexander Bueso
Date: Monday 22 Jan 2018
(ShareCast News) - Sterling continued to move higher at the start of the week after French Prime Minister Emmanuele Macron appeared to hold the door open to a bespoke trading arrangement for the UK after Brexit.
Speaking on The Andrew Marr Show at the weekend, Macron said: "[...] it depends on what you're ready to put on the table in terms of preconditions [...] (the UK) can have some deeper relations [...] (with us). For instance, we have a deeper relation with Norway than [...] Canada."
For Deutsche Bank's Jim Reid, "French President Macron seems to have softened his position on potentially including UK based financial services firms in a post Brexit trade deal."
Thus, cable was 0.64% higher by the end of the trading day to 1.3952, having hit an intraday high at 1.3971.
However, Monday's push higher, which came on the back of five consecutive higher weekly closes, failed to boost Sterling past technical resistance at 1.3980, which as Michael Hewson, chief market analysts at CMC Markets UK pointed out, marked the 38.2% retracement of 1.7190/1.1950 down move and would be a "significant" hurdle for the pound as it tried to move past 1.4000.
As as aside, in a note sent to clients Joachim Fels, global strategic advisor at PIMCO, mused aloud about the failure of the greenback to strengthen, as some of the more traditional theoretical models would have predicted.
One possibility, in his opinion, was that markets had begun to speculate with a "regime change" in US economic policy, characterised by greater co-ordination of monetary and fiscal policies.
"Implicit fiscal and monetary coordination would support a combination of a weaker currency, short- and intermediate interest rates that are anchored at relatively low new neutral levels, rising inflation expectations and still-buoyant equity markets. Which is exactly what we have been seeing recently. Thus, viewed through the lenses of a potential new regime of fiscal and monetary coordination recent market moves in the dollar, bonds and equities are less puzzling than they appear at first glance," Fels said.
From a bird's eye view, the US dollar spot index was edging lower by 0.06% to 90.521, having hit an intraday low at 90.362.
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