Is the Market Too Complacent on Cable?

10/14/2020 10:00 am EST

Focus: FOREX

Boris Schlossberg

Co-Founder, BKForex.com and Managing Partner, BK Asset Management

Equities continued their steady climb higher in Asian and early European trade with both Nasdaq and S&P higher by about 50 basis points, but currencies were essentially flat in listless quiet trading, states Boris Schlossberg of BK Asset Management.

There was very little fresh news flow both on the political and economic front and what little there was hardly seemed supportive to the markets as stimulus talks in Washington DC went nowhere while in Europe the Brexit negotiations looked to be stalled over the issue of fishing.

Still, equities shrugged off the bad news on stimulus as well as fresh setbacks on the coronavirus vaccine by several pharmaceutical giants that had to suspend their initial trials due to adverse effects. The equity markets continue to be driven by one thing and one thing only—ample liquidity by the Fed.

With inflation gauges remaining tame (yesterday’s CPI showed readings in line at 1.4%, and today’s PPI data is also forecast to come well below the 2% barrier), investors continue to bet that monetary conditions will be accommodative for the foreseeable future, and as long as earning remain supportive the stock continue their “relentless bid” cycle.

In FX, the action was moribund with currencies holding on to 20 pip ranges with the only action in the cable, which spiked 50 pips in 60 seconds only to retreat back towards the 1.2900 figure. Despite the breakout of Covid and the prospect of widespread lockdowns and despite the threat of a hard Brexit as the UK and EU appear to be unable to come to terms GBP/USD remains remarkably resilient with the markets continuing to bet on some sort of a deal.

The EU has a long history of last-minute deal-making, but the history of Brexit has been one disappointment after another, and it is quite possible that the Europeans may simply let the UK spin out of its trading orbit and the market is pricing none of that risk in.

By Boris Schlossberg, Co-Founder, BKForex.com

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