UK faces exit bill from European Commission

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Fundamental outlook 

US new home sales improved while the labour market narrowed as job claims rose. UK continued to exhibit firm economic growth despite the impending Brexit. The terrorism act committed in London recently caused five deaths, placing Britain on high alert.

US current account deficits narrowed to US$112 billion in January, lesser than forecast, compared with US$118 billion recorded in the previous month. Existing home sales grew 5.48 million in February and the lowest in the past three-month record. Weekly crude inventories expanded five million barrels last week which was higher than expectations.

US new home sales rose back to a four-month high at 592,000 amid steady growth in housing demand. Jobless claims unexpectedly surged to 258,000 but labour market remained strong. Order for core durable goods, excluding transport equipment, rose 0.4 per cent in February, on par with core the previous month’s data.

Current account surplus in the eurozone rose 24.1 billion euros in January, the lowest in six months, compared with 30.8 billion euros recorded in the previous month.

UK consumer prices jumped 2.3 per cent unexpectedly in February from a year ago, the best recorded in the last 3 years. Producer prices on a monthly basis declined 0.4 per cent, indicating a slowdown in production.

British net borrowing in the public sector grew 1.1 billion pounds in February, missing forecast. Retail sales expanded 1.4 per cent in February, the best recorded in the last four months.

Last week, London suffered from a terrorist attack near the House of Parliament, resulting in five deaths and 50 casualties. The British government went on high alert while the ISIL terrorist group has claimed responsibility to the attack.

European Commission reiterated that there would be an ‘exit bill’ for the UK before it leaves the European Union (EU). This is controversial to UK’s government that has refused the bill multiple times. The bill, which has been calculated by EU officials, includes the UK’s share of debts, pensions and unpaid bills. It is estimated to be about 60 billion euros.

 

Technical forecast  

US dollar/Japanese yen traded in bearish trend last week but made a small rebound on Friday. The market still remained supported at 110.50 region while it could consolidate at 112.50 level this week. We foresee the trend would move in mixed sentiments and it might attempt a short-cover for a while.

Euro/US dollar resisted at 1.082 region as the rising trend slowed down. This week, we reckoned the trend would be resisted at 1.085 in case the market continues to rise. Falling back could result in a 1.0650 support if the dollar rebounds. Market investors should keep a close watch of US’ tax-reform policy that could lead to new dollar trend.

British pound/US dollar traded in a gradual uptrend last week, indicating that it was barely affected by the terrorist attack in London. This week, we predict the trend would range from 1.235 to 1.265 region without a clear clue on the market’s direction. Investors are still not leading the market direction as the Brexit execution is about to begin.

 

Disclaimer: This article was written for general information only. No liability by the writer or newspapers.

Dar Wong is a registered fund manager in Singapore with 28 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected].