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Brexit Row Fails to Excite Market

Spat over dinner meeting marks divisions.

 

 

What was intended to be a private dinner between Theresa May and Jean-Claude Juncker last week has seemingly laid the foundations of division over Brexit.

 

 

It is perhaps significant that Juncker reported back to German Chancellor Angela Merkel rather than EU Council President Donald Tusk. Juncker apparently left the dinner “ten times more sceptical than he was before”.

 

 

The main disagreements appear to be over the treatment of EU citizens in the U.K. and the payment of a fee or fine that isn’t part of the Lisbon Treaty. Mrs May wanted an outline agreement on treatment of E.U. nationals by the end of June and Juncker said that thinking this could happen means May is “living in another galaxy”.

 

 

Why would the U.K. expect anything other than snail paced progress as that is how everything works in Brussels?

 

 

Traders have not been phased by the news and sterling remains well supported. It is clear that the belief that the country needs a strong and well supported Government  before it can start to deal with any misinformation being peddled by Brussels and/or Frankfurt.

 

 

FOMC meeting likely to give “Advance Guidance”

 

 

The fact that the Fed “used up” two of their likely three hikes for 2017 in the first few months of the year has left traders wondering the if the strategy has moved from three to four hikes.

 

 

The recent data releases haven’t pointed to any change. Last weeks preliminary GDP release coupled with the last employment report show an economy that is reacting to monetary policy in the desired manner. Even President Trump said that he had hoped monetary policy could remain looser for a little longer. This is a massive departure from his campaign when he took  every opportunity to criticize the Fed for continuing unusual measures for longer than necessary.

 

 

In her press conference tomorrow following a “no change” decision, Mrs Yellen will likely point to data releases both recent and to come saying that “the FOMC will be guided by how the economy performs”. So her advance guidance will be to retrospectively react to data that has already been released. Curious!

 

 

Trump would meet Kim “ in the right circumstances”.

 

 

Now that their THAAD missile system is operational in South Korea, Donald Trump can increase the diplomatic pressure on Kim Jong Un the rather unorthodox leader in Pyongyang.

 

 

Trump has said that he would be honoured to meet with Kim. It is not hard to imagine the “right circumstances” but I doubt that Pyongyang would be the venue and since Kim is facing a travel ban as part of the U.N. sanctions it won’t be in Washington either.

 

 

It remains unlikely that the U.S. is going to allow Kim to just keep firing test missiles until he get it right. Although there is some scepticism in the U.S. that that will ever happen and isn’t, in any case, Kim’s likely aim.

 

 

Risk appetite in the FX market remains intact with traders seemingly comfortable that Kim’s ability gto create a nuclear arsenal is a long way in the future. The dollar is gaining ground against the JPY, trading well above 110 and looking to test resistance at 112.20.

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