European Open – Brexit, gold, oil

The Brexit show goes on

We’re seeing a mildly negative start to European trade on Tuesday, as attention in Europe switches from Brexit to the ECB, amid high expectation of an aggressive pending stimulus package.

Source – Thomson Reuters Eikon

We may have to wait until November to judge just how bad a couple of weeks it’s been for Boris Johnson or whether all the theatrics have simply masked a series of events that’s progressing roughly as planned. It would be quite extraordinary if his master plan has been undone by Parliament predictably legislating to block no-deal and Jeremy Corbyn, maybe less predictably, not jumping at the chance to have a quick election.

Parliament is now suspended for five weeks, time that should be spent negotiating with the EU to try and salvage Brexit, but I expect Johnson may have other ideas. I don’t expect the PM to be deterred by the small detail of an election not being backed by Parliament and will be hitting the campaign trail hard while members of his team plot his next steps.

I struggle to see any real progress between the UK and the EU before the European Council meeting in the middle of October, unless Johnson can miraculously provide detailed plans of the alternative arrangements that have long been touted as an alternative to the backstop. I don’t think anyone is holding their breath there so instead, we’ll probably just be treated to a five week no-deal, people vs parliament, PR offensive. It will be interesting to see if the pound falls victim to it or holds firm on the belief that no-deal won’t happen.

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Gold stumbles as risk appetite picks up

Gold bulls may finally be conceding defeat after repeated tests of the $1,520-1,560 range failed to produce a breakout. This has historically been a major area of support and resistance for the yellow metal so when momentum started to slip on approach to it again, it was clear it was in for a tough test.

Gold took one more stab at $1,560 last week and has since been on the decline, breaking initial $1,520 support and now looking to test $1,480. A break of this could signal a broader correction after, what was, a strong rally built on vast central bank easing and risk-aversion in the markets. While the former hasn’t changed – as the ECB is expected to prove on Thursday – risk appetite has improved with US stocks pushing record levels once again.

Gold Daily Chart

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Oil rally will be repeatedly challenged

Oil prices have also been lifted by the improved risk environment. Unfortunately, they’re not exactly scaling past highs like stocks are, as the economic outlook hasn’t really changed. Oil prices have been hampered by global growth fears and central bank easing has soothed concerns, while new tariffs between the US and China have only fueled them. Brent is back above $62 which is encouraging but I expect rallies will be repeatedly challenged unless the outlook improves.

Brent Daily Chart

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam