Has politics had its day in FX?

The FX market’s current relationship with the pound is similar to that of a matador with a stricken bull.

There is no fight left in the Bull (market) so all is needed is the tercio de muerte (a conservative election victory) and the market can start 2019 with a clean(ish) slate.

There will be traders who have never seen a market driven by issues other than politics and economic drivers will take some getting used to again.

Of course, the Labour Party will continue to believe that it can win at the polls, while the Leader of the” Third Party”; Jo Swinson, still feels that she can push a rock uphill.

The Conservative’s lead is down to 11% in the latest poll, with 41% saying they will back Boris Johnson. Whatever Johnson agreed to the blunt the challenge of the Brexit Party has clearly worked since far from splitting the Conservative vote it has become a straight in/out decision between the Lib Dems and Brexit leaving the Conservatives and Labour to fight in the main event.

It would be sensible for UK businesses affected by Brexit to start making preparations in earnest as there is one certainty in this election, the UK will leave at its earliest opportunity just as soon as the bunting has been taken down and Johnson has ordered his Christmas Turkey.

That Labour Party will almost certainly do away with Jeremy Corbyn as Leader should the Conservatives win a majority, since despite being the darling of the Unions, the country doesn’t like his politics, even if he is considered more genuine than Johnson.

The pound recovered most of the ground lost on Friday, staging something of a recovery based upon the removal of a layer of uncertainty. There will be those who can see the layer being returned but for now the market basks in the possibility of a Conservative majority and a Brexit decision.

Sterling traded up to a high of 1.2912 closing around 1.2900. It also made ground against a weakening euro reaching a high of 1.1723, closing at 1.1715

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Consumer bonanza turning into an export.

In the UK election, the Labour Opposition has been clear in its campaign that, if elected, it will try to ensure that the UK is not in America’s pocket.

As the U.S. gears up for this week’s Thanksgiving celebrations, American satellites, of which the UK is (for now) one, are gearing up for Black Friday.

The UK has already lost bonfire night to Halloween and the power of the online retailers like eBay and Amazon will drive global consumerism forward, ensuring btgis American tradition expands

This annual equivalent of a kind of “Thanksgiving Boxing Day” is the single most important day for retailers in the year. The whole Black Friday event is a perfect example of why the talks between Beijing and Washington are so important.

It has nothing to do with the old adage that when America sneezes, the world catches a cold,

The U.S. and China can go on like this for years and it will have no effect but as soon as America loses ground (as it surely will) they will throw up barriers to several areas and products and one of the biggest losers with the European automotive industry. Trump is constantly threatening to slap a 25% tariff on imports of autos from Europe but so far can’t find any justification.

As mentioned yesterday, the dollar will remain range bound, certainly until after the GDP release but it will take a major event to shake it out of that range.

Yesterday, it traded between 98.17 and 98.38, closing at 98.30. The proximity of the GDP data and thanksgiving could see something of a liquidity squeeze should the euro break support (see below) but it is too early to speculate on that just yet.

German IFO scraping along the bottom

The Munich-based research institute IFO released data yesterday on the German Business climate, its current assessment of the economy and future expectations.

Although the data was dismal, the one ray of hope in the gloom was that it was very similar to last month, which provides a further indication that the economy is bottoming out.

That is about as positive as it can be currently, but no amount of positivity is likely to keep Germany and therefore the Eurozone out of a potentially damaging recession.

As Christine Lagarde remarked on Friday, consumption and investment from within need to take place. The issue remains that several banks are considering retreating behind national borders and that flies in the face of a unified Europe.

Just how consumer confidence can be raised sufficiently to encourage the man in the street to start spending is hard to imagine.

The euro is precariously close to long-term support around the 1.0980 level. Of course, since inflation is so benign, the inflationary ramifications of a weaker currency barely apply and should the euro fall by another 10% or so and challenge parity, it may be a saving grace for the economy if global trade doesn’t derail any turnaround.

Yesterday, the single currency fell to a low of 1.1003, closing at 1.1015