MORNING CALL: Trade War, Brexit & The Volatility

Westminister returns back to work and the US-China trade negotiations resumes. Global stock markets are optimistic 

In the forex market, there is no shortage of volatility after the recent events which brought historic moves in the Aussie and the Japanese yen. Of course, the major reason behind those moves was the ongoing trade war between the US and China. Traders are expecting this volatility to stay here for a while because, in the coming weeks events like; Brexit, the discussion around the trade war including the debt situation around the Italian banks are going to keep things interesting among the G-7 currencies. The below chart shows that the volatility for the G-7 pairs has spiked and there is no sign of it losing the momentum.


With Westminister returning today, Sterling could be the most interesting currency to keep a close eye because we have only three months left before the Brexit deadline expires and if there is no deal, the UK will be pushed out of the European Union without any deal. The country’s economy is clearly at risk because the bureaucratic barriers will suffocate the economy. The Prime minister has already made it clear on Sunday that the vote for her current deal will go ahead. She is hopeful to win support for the agreement.  If she doesn’t secure the vote in the parliament, the probabilities of another referendum will be even higher.
Back in the equity markets, European markets and US futures are trading higher and investors are ready to build on the gains that we have seen on Friday. Asian markets have kicked off the week on positive momentum, thanks to the soothing comments by the Chairman of the Federal Reserve bank, Jerome Powell who said that the Fed is flexible in their approach and paying close attention to the markets.
As for the trade war, the officials from China-US will start the trade negotiations today and as always the hope is to secure a deal. The 90-day truce period is running out and both sides need to make sure that a deal is done within this period.