Pound higher as DUP may back May’s Brexit plan

Summary:

• British pound trades higher this morning as DUP has reportedly signalled that it will back a May’s Brexit plan to be voted next week

• Ross’s comments on a trade war with China, the US govt shutdown enters another day

• Core price growth in Tokyo surprises to the upside as the new year kicks off

DUP likely to offer green light

The British pound is by far the strongest G10 currency in early European trading following the Sun’s news that the DUP has privately decided to back Theresa May’s Brexit plan next week when she toughened it up. Keep in mind that this plan is to be voted on January 29. What are we talking about when it comes to “toughening this plan up”? The Sun cited one senior unidentified DUP source as saying that “If she fails on Tuesday, Parliament will take over and we lose any semblance of a decent Brexit. We have to help her now, so we’ll vote with the Government if they agree the right amendment. That’s looking like a short time limit to the backstop at the moment,” Hence, if all DUP members decide to back this deal and a landslide majority of Torys do the same, then a May’s plan does not need to be doomed to failure. That’s the upbeat news for the pound which jumped on these revelations breaking through 1.31, and being en route to 1.33. Technically this level may play an important role for bulls who could decide to cash in on their positions.

The GBPUSD is pushing forward being supported by reports that the DUP could back a May’s Brexit deal when it’s voted in the House of Commons next week. Source: xStation5

Trade war and shutdown

Asian stocks are doing quite well on Friday with the Hang Seng (CHNComp) gaining over 1.5% at the time of writing. The Japanese NIKKEI (JAP225) closed the day virtually 1% higher. In turn, Wall Street closed Thursday’s trading little changed and only the NASDAQ (US100) managed to gain 0.7%. Meanwhile, we were offered some comments coming from US Commerce Secretary Wilbur Ross who said that the US and China were eager to end their trade war, but the outcome will hinge on whether Beijing would deepen economic reforms and further open up its markets. These comments are in line with the latest US rhetoric suggesting that a ball is at the Chinese backyard. Ross added that negotiators could release a statement on their progress following a meeting between Chinese Vice Premier Liu He and US Trade Representative Robert Lighthizer. The meeting will take place in Washington on January 30/31. In turn, the US government shutdown is entering its 35th day and nothing signals it could end any time soon. In recent hours the Senate blocked two rival spending bills, and the White House signalled that President Donald Trump was ready to reopen agencies for three weeks if there was a large down payment on the wall. Let us remind that the Trump’s idea to build a wall at the southern border is to cost as much as $5.7 billion. However, Democrats are very unlikely to agree on this demand coming from the White House with Nancy Pelosi, speaker of the House, saying that the Trump’s idea wanting a down payment for a wall is “not a reasonable agreement”. Instead, Democrats are expected to come up with a plan on Friday to boost border security through other ways than a wall. The deadlock seems to be dragging on weighing on the US dollar being traded lower against its all G10 peers except the yen.

Nevertheless, the US dollar may catch a bid in the near-term thanks to quite a dovish tone presented by the ECB yesterday. Technically it can make sense as well as the dollar’s index (USDIDX) managed to stay within the bullish channel. Source: xStation5

In the other news:

• Tokyo’s inflation for January rose 0.4% YoY beating the consensus of a 0.2% YoY increase, core prices moved up too to 1.1% (excluding fresh food) and 0.7% (excluding fresh food and energy)

• US 10Y yield trades at 2.731% while the SP500 futures gain 0.5%