OANDA European Open – Markets, Brexit and OPEC

Yield curve concerns continue to weigh

We’re seeing significant risk aversion in the markets again on Thursday, with Asia trading deep in the red overnight and European pre-market levels painting a pretty grim picture for the day ahead.

Any boost from the Trump/Xi dinner over the weekend lasted barely longer than the main course, with investors instead turning their attention to the US yield curve and what the inversion means for the economy next year and beyond. While I don’t think investors are in recession planning mode just yet, they will be monitoring the curve very closely for the foreseeable future so we may be hearing a lot more about them.

Fed Chairman Jerome Powell can probably expect more public bashing from Trump as he continues to weigh in on an area that past Presidents have avoided, out of respect for the central bank’s independence. That’s unlikely to deter the Fed from hiking again this month though, although we may see a noticeably different outlook from them in terms of tone and rate hike expectations.

Aussie falls as trade surplus narrows

Brexit uncertainty grows as May’s deal suffers numerous setbacks

Domestic issues continue to cloud the UK outlook and weigh on the currency, as parliament debates Theresa May’s Brexit deal following a series of defeats that resulted in her legal advice being published. The advice confirmed people’s biggest fears that the country could be locked in the backstop indefinitely until a new agreement superseded it, something that is only partially in the control of the UK.

GBPUSD Daily Chart

OANDA fxTrade Advanced Charting Platform

May now faces a huge uphill battle to get the deal through parliament next week and many – including myself – are already working on the assumption that it fails and May is forced to return to the EU asking for more concessions. There are numerous paths this could then go down in the run up to Christmas – a time when politicians would rather be celebrating with their families rather than talking Brexit – and this fact could weigh heavily on the pound in the coming weeks, although we’re yet to see a significant break below 1.27 against the dollar which could be the catalyst for another plunge.


Can OPEC live up to market expectations or will they trigger more downside?

After weeks of speculation and more tumbles in the price of oil, OPEC and its allies will finally meet in Vienna on Thursday to discuss its response to the declines and the shifts in the supply/demand dynamics that have driven it. Record output from some of the world’s largest producers – including the US – and a murkier global economic outlook have been two major factors, which has forced the group to consider another round of output cuts, something not all are in agreement on.

A cut of between one and 1.3 million barrels per day is apparently under consideration and there have been positive signals that Saudi Arabia and Russia – the two largest producers at the meeting – could be on board. But after weeks of reports that an agreement is not straight forward, I wonder whether there is a risk that the group under delivers – be it on the size or duration of the cut – and rather than supporting prices, acts as the catalyst for the next decline.

Source – International Energy Agency

There’s plenty more on the agenda today, including an array of US economic data releases after markets were closed on Wednesday in honour of the late President Bush. We’ll also get crude inventory numbers although this may be somewhat overshadowed by the OPEC announcement.

Economic Calendar

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

Content 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 Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

Craig Erlam

Craig Erlam

Former 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 SKY News.

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.