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AETOS Market Commentary 11/02/2019

AETOS Capital Group


The Euro tumbled on Friday, making that the sixth consecutive day for the pair dropping throughout last week , closing at 1.1323(-15 pips). The Euro ended the week in the middle of the pack again, and there was a clear ‘risk off’ tone to the week given that EURCHF, EURJPY, and EURUSD were the worst performers. The first revisions to the Q4’18 German and Eurozone GDP reports should show a greater slowdown in growth than initially measured. One of the main catalyst of Euro weakness in current weeks has been the widening gap between the European Central Bank’s growth forecasts and how actual data have materialized. Moreover, more disappointing news came from developments around trade talks. Whereby, US President Donald Trump said that he would unlikely meet his Chinese President Xi Jinping before March 1st, the deadline imposed by the US to conclude negotiations. The Administration is set to slap new tariffs on China if no accord is reached. Larry Kudlow, the President's Economic Adviser, also said that negotiations have a long way to go. The result was a slide in stocks. The risk-off mood boosted the greenback and the safe-haven Japanese yen. In the old continent, the euro is still reeling from the European Commission's growth forecasts. Brussels slashed the bloc's outlook from 1.9% GDP growth in 2019 to only 1.3%. Germany is projected to see an expansion of only 1.1% and Italy a meager 0.2%. Economic indicators have not been favorable either. Germany suffered the third consecutive day of misses on its data. Seasonally adjusted trade balance slipped to 13.9 billion in December, worse than had been expected. However, there is a silver lining: both exports and imports increased.


The Pound fell by a margin on Friday, closing at 1.2940(-8 pips) against the greenback. Last week, The Bank of England ‘Super Thursday’ saw the central bank downgrade growth expectations for 2019 again, this time to 1.2% from 1.7% and trimming interest rate expectations to just one 0.25% hike by the end of 2020.The BoE based their lower growth forecast on weaker overseas economic activity and ‘the greater effects from Brexit uncertainties at home’. These comments sent GBPUSD spinning around one cent lower, but this fall was quickly erased when comments came out from Brussels that further Brexit discussions will take place between PM May and European Commission President Juncker before the end of February. Later, comments from Donald Tusk saying that there will be a ‘special place in hell’ for politicians who pushed for Brexit without a delivery plan, were brushed off , despite gathering reams of headlines. GBPUSD was also under pressure all week from a resurgent US dollar which touched a fresh five-week high. EURGBP, perhaps a better Brexit barometer, is ending the week fractionally lower. UK Q4 GDP foreseen up by just 0.2% following a 0.6% gain in Q3. Brexit uncertainty maintains the pair ranging, but the bearish case is strengthening. The GBP/USD pair closed lower for a second consecutive week at around 1.2935, unchanged Friday after bottoming Thursday at 1.2853 following BOE's decision to cut the kingdom's growth forecast. This last was a result of Brexit-related uncertainty. UK PM's May and EU's Chief Negotiator Juncker agreed to hold more talks to try to avoid a no-deal Brexit, although Juncker repeated that the withdrawal deal is not open for renegotiations. The UK will release at the beginning of the week preliminary Q4 GDP, with the economy expected to have grown 0.2% in the three months to December. The UK will

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Source: https://www.aetoscg.com/uk/market-commentary
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