*German and French CPI data matched the forecast *Theresa May secured Brexit delay until the end of October *Fed minutes confirmed data dependency
European markets are trading higher as investors are feeling optimistic about the French and German CPI numbers. Both numbers matched the forecast and didn’t drop below the previous reading. For the ECB lawmakers, this is an encouraging sign because the inflation picture isn’t becoming worse.
Mario Draghi left all doors unlocked yesterday in relation to the bank’s monetary policy. Overall, the statement was somewhat dovish. The bank had to acknowledge the fact that the growth has not only stalled in Europe but it has started to deteriorate as well.
Brexit Horror Will Stretch For Another 6 Months
Brexit horror show got another extension by the EU policymakers late last night. The extension has been granted until the end of October, leaving the investor with the guessing game of trick or treat. The extension deadline is much longer than what the U.K. leaders were hoping for but it is shorter than what many EU leaders had in their mind. However, the review of the progress will be done towards the end of June. May can thank French President Emmanuel Macron for this. He played hardball yesterday but it was also another way of assessing the Brexit progress because the EU is tired of this drama.
The British Prime Minister, Theresa May would have to face another challenge when she returns to parliament. A large number of her party members are going to create more chaos, they never supported any kind of long extension. They consider this as a betrayal of the 2016 referendum vote.
I believe that the chances of Brexit being canceled have strengthened once again. One can never ignore the possibility of another General Election taking place because her party members may want her to resign. Six month period is enough time for Tory party critics to hold a leadership contest which can replace her.
As for Sterling traders, the event hasn’t produced any meaningful move. In fact, Sterling-Dollar pair's one-month volatility has crashed. This may pick up again as the UK parliament still needs to rectify the deal and the drama which the prime minister is going to face is no short of any surprises. Hence, I believe that this currency pair is going to remain favorite among day traders. investors, a longer period of extension means more uncertainty.
The Fed Minutes and Gold Price
The Fed minutes raised many eyebrows last night. Investors were thinking that the Fed isn’t going to increase the interest rate this year at all. However, the minutes confirmed that if the economic data continue to support the economy, a rate hike could be on the table at the back end of this year. Luckily for the dollar bears, this wasn’t the majority view, at least, not for the time being.
I do believe that for the time being the Fed is going to continue to sit on its hands and just monitor the situation carefully. The evidence of this comes from the fact that the gold price is still trading above the 1300 mark. For bulls, this is a critical level, it sends a strong signal of recovery and hope. As long as the price stays above this critical mark, we have hope that the price may cross the 1350 level.