The Week Ahead: Amend and Extend

Foreign Exchange: The Week Ahead
Amend and Extend
Share this story:
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
After a delay in the December 11 Meaningful Vote, the UK Parliament is set to finally vote on PM May's Withdrawal Agreement (WA) on January 15, at least as of the time of this writing.  As we learned from the last time Parliament was set to vote on the WA, things can shift very quickly so it still remains possible the vote doesn't go through.

As it stands, there is no progress of any significance on gaining further concessions from the EU, leaving the markets to expect the WA to fail.  Because of this, the focus will likely be on amendments and the margin of loss as a proxy for May's ability to get an amended version through on a revote.  For scale, a loss by over 75 votes will likely be seen as a large defeat.  While a loss for the Government will be negative for the GBP, PM May cannot face a vote of no confidence this time around, making a loss less GBP bearish than in December. 

Additionally, there are two other key differences this time around that support our belief of an ultimately soft Brexit outcome.  The first one is Parliament's requirement for the Government to return with a Plan B within 3 days of a failed vote, as opposed to 21 days.  This has pulled forward the Government's contingency planning.  Secondly, there are discussions around an extension to Article 50 and we expect these talks to intensify in the case the WA is rejected as most scenarios post-rejection would involve some kind of extension.  As it stands, odds makers are only assigning a 33% chance Brexit happens on schedule.  

Finally, it has been reported that Labor Leadership will push for a vote of no confidence in the government should the meaningful vote be rejected.  If this were to happen, keep an eye on DUP MPs as their votes will be critical. 


1/16 Turkey Expectations for rates to remain unchanged at 24.00%
1/16 South Africa Expectations for rates to remain unchanged at 6.75%


United States and Canada

1/14-18 New Home Sales Expectations for a gain to 567k following a 544k print
1/14-18 Factory Orders Expectations for a gain of 0.3% following a -2.1%
1/14-18 Trade Balance Expectations for a slight decline in the deficit
1/15 Empire Manufacturing Expectations for a slight improvement from 10.9 to 12.0
1/15 PPI Expectations for a decline of 0.1%; YoY remains at 2.5%
1/16 Retail Sales Expectations for a gain of 0.2% following a 0.2% gain
1/17 Housing Starts Expectations for a gain of 0.2% following a gain of 3.2%
1/18 Industrial Production Expectations for a gain of 0.2% following a gain of 0.6%
1/18 Canada CPI Expectations for a decline of 0.3%; YoY remains at 1.7%


1/14 EZ Industrial Prod. Expectations for a decline of 1.3% following a 0.2% gain
1/17 EZ CPI YoY Expectations for a print of 1.0% again
1/15 Germany CPI Expectations for a gain of 0.1%; YoY remains at 1.7%
1/15 U.K. Brexit vote Expectations for the Parliamentary vote today
1/16 U.K. CPI Expectations for a gain of 0.2%; YoY drops to 2.1%
1/16 U.K. PPI Expectations for a print of 0.0%; YoY drops to 2.9%

Asia/Japan, and New Zealand

1/14 China Trade Balance Expectations for another large trade surplus
1/17 Japan Nat’l. CPI Expectations for a decline from 0.8% YoY to 0.3%



The EUR finished higher last week driven mostly by USD weakness as dovish Fed comments, the government shutdown/elevated risk premium and a stabilization of risk appetite weighed on the greenback.  Near term, we expect the EUR to remained pressured as economic data out of the EZ remains weak as Germany, France and Italy all show softness.  Longer term, we still remain constructive as a more data dependent Fed, gridlock in DC and fading fiscal stimulus in the US should soften the dollar.  Additionally, we ultimately expect an orderly conclusion to Brexit and Italy as well as trade tensions which should all support the euro as the EZ is a more open export-oriented economy than the US. 


The GBP traded broadly sideways last week until Friday when it strengthened sharply on reports on a Brexit delay.  This reaction underscores how the meaningful vote on January 15 is the key driver of the GBP.  Market consensus is for the Parliament to vote down the Withdrawal Agreement so keep an eye on the margin of defeat, as the GBP's negative reaction should be proportional to the magnitude of defeat.  Over the medium term, we remain constructive on the GBP as we expect a deal to ultimately be struck.  


The JPY traded sideways for the week and, for all intents and purposes, finished flat for the week.  The JPY has been strengthening as the USD and US yields have fallen.  Bank of Japan monetary policy is slowly shifting to neutral, and market positioning was tilted toward excessive short JPY positions. Expect US yields to remained pressured leading to a steady to stronger JPY in the short term.


The CAD has staged a strong recovery since the beginning of the year as it is the G10's best performing currency by a decent margin.  A recovery in oil prices of over 20%, on expectations of supply cuts, since the lows on Christmas eve, has helped in the CAD's recovery.  While BoC kept rates on hold at its most recent meeting, economic activity is expected to recover, especially after USMCA is ratified allowing the BoC to keep pace with the Fed.  Over the course of the year, we expect the CAD to trade range bound but in the near term, the CAD's recovery appears a bit stretched.


Positive trade developments, including a surprise drop in by a senior Chinese official to a low level meeting between the US and China, have improved market sentiment and have allowed the CNY to strengthen to its lowest level since the middle of 2018; it is approaching a level where the PBoC could start to be concerned about its sharp appreciation.  With China's top trade advisor scheduled to visit the US for trade talks, the bias is for a stronger CNY as long as sentiment remains positive.  Over the medium to long term, we still see a weaker CNY as fiscal and monetary steps are taken to support the softening Chinese economy.   


After spending the entirety of 2018 on a steady weakening trend, the AUD has been one of the G10's top performing currencies, only trailing the CAD.  Positive US-China trade developments have aided the AUD recovery as short AUD has been used as a proxy for trade war concerns.  The Reserve Bank of Australia remains firmly planted in neutral for now as the economy continues to give off mixed signals.  Expect a steady to weaker AUD this week. 
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Investment and Insurance Products:
Are Not insured by the FDIC or any other federal government agency
Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
May Lose Value
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog

Acquisitions or Alliances: What's Your Growth Strategy?