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Traders cautious ahead of major global risk events including tonight’s Brexit amendment votes

By Alex Edwards

The pound is under a bit of pressure this morning as investors start to get a little more nervous ahead of tonight’s amendment votes. The Cooper Amendment – which will force a no-deal Brexit off the table - is going to be the one to watch, with markets still unsure as to whether it will pass. If defeated, it’s likely to be negative for GBP and vice-versa. Meanwhile the government is busily whipping MPs into voting in favour of the Brady amendment which stipulates that the backstop should be replaced with “alternative arrangements” – albeit the EU have repeatedly said they’re unwilling to budge on this. We don’t know which amendments will be voted on tonight. It’s the decision of the Speaker, but we’ll find out early this afternoon, with the two above being more than likely to be chosen.

Throw in the FOMC meeting, which starts today and finishes tomorrow, corporate earnings data, US-China talks and US Non-Farm Payrolls on Friday, it all makes for what could be a nervy day in FX in London today. The range in GBP crosses might not be wide, but it could be choppy ahead of some fairly hefty risk events this week.

It was a mixed bag for the dollar yesterday. US yields and stocks moved lower but the USD selling – seen late last week – abated. In the very near term, traders will be looking to various earnings reports for direction. So far, Caterpillar and Nvidia have both disappointed citing weaker growth in China – this could be a bit of a theme.

Following the earnings reports, it won’t then be long before investors turn their attention to US-China trade talks, set to begin on Wednesday. Meanwhile, Huawei is back in the headlines; the US filed criminal charges against the world’s second largest smartphone manufacturer’s CFO yesterday with China responding by calling the charges “unfair and immoral”. It makes for what could be some tense negotiations this week.

Meanwhile, the Fed are set to make a monetary policy announcement, although markets don’t foresee any change in rates. Many banks/economists are fairly sure that the central bank will downgrade its assessment for economic activity and take more of a neutral stance. We’ll find out on Wednesday evening.

EUR/USD is a touch higher this morning and has generally been one of the better performing currency pairs over the last 12-24 hours. It’s a bit of a turnaround for the single currency after ECB President Mario Draghi’s dovish comments during the ECB press conference last week.

Testifying yesterday before the European Parliament Economic and Monetary Affairs Committee, Draghi noted the ECB was open to resuming quantitative easing if needed but unlikely in 2019. He said that growth continues to be softer than expected and was critical on demands from external countries as geopolitical factors continue to weigh, but it was nothing traders hadn’t heard before and the single currency has been bid higher since.

There’s no European data due today but EUR/USD traders, while mostly focused on US risk events, will have half an eye on German Prelim CPI tomorrow as well as some German confidence numbers.

AUD/USD dropped off a small cliff last night following the release of weaker than expected NAB Business Confidence, which printed at its worst level since 2014.

It’s recovered since through, and some! The recovery has been partly inspired by comments from RBA Board member Harper who said that he still saw the next RBA rate move as higher.

These comments may well seem out of place should Australian inflation data print weaker than market forecasts later tonight, which is expected to come in at 0.4% q/q. It’s a big set of data and could have a big impact on the aussie dollar.

USD/CAD has been steady since markets opened this week and has traded either side of the 1.3250 level over the last few trading sessions. The focus for USD/CAD traders will be on US risk events. In terms of local data, the only major release comes in the form of Canadian GDP due on Thursday.

NZD/USD has traded in a similar vein to AUD/USD in the last 12-24 hours. The kiwi got an extra boost following the release of a healthier NZ trade balance print overnight and the pair opens in London at .6850.