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The war of “formal notifications’ between EU and UK intensifies – Market Overview

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
On the other hand, in Europe, the situation of tension over Brexit is accentuated.

US electoral debate

After the negative impact on the markets caused by the chaotic electoral debate between Trump and Biden that did nothing more than increase uncertainty and, with it, risk aversion in financial markets; the focus is now on the conversations that US House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are holding for the implementation of a fiscal stimulus package. 

The political situation of open confrontation on the eve of the elections does not help in any way to reach an agreement. Still, the urgent need for this fiscal stimulus to be approved so that the US economy does not enter a process of stagnation from which it can hardly emerge without these measures, it appears to be pressuring both parties to agree to a minimum. 

After a meeting was held yesterday, no consensus was reached, but the positions seem to be closer, according to the participants in these meetings. The main difference is in the amount of the stimulus package. While the government offers $1.5 trillion expandable to $2 trillion if the situation worsens, the Democrats demand an amount of $2.2 trillion from the beginning.

The stock markets have reacted positively to this news. However, they only represent a first approximation, and there is in no way a certainty that it will be approved or will therefore be able to be implemented immediately as the majority of the members of the Federal Reserve are requesting.

At the moment, TECH100 is approaching the critical level of around 11,550, whose overcoming would mean the activation of a reversal pattern whose theoretical objective is at levels close to the maximum, about 12,500.


 

The BREXIT conundrum 

On the other hand, in Europe, the situation of tension over Brexit is accentuated. The European Commission has sent the British government a formal notification on the internal market bill warning it that non-compliance with the previously agreed exit agreements from the European Union would lead to legal action against the United Kingdom.

Boris Johnson's internal market bill representing a breakdown of previous agreements has yet to be approved by the House of Lords, where the conservative party does not have a majority.  The October 15 deadline imposed by Johnson will not be able to be fulfilled with almost all certainty and the already long episode of the Brexit novel is going to last longer.

The British Pound has reacted negatively to these events, although not in a surprising way. The market seems to wait to take action once the facts are known without anticipating possible scenarios, all of them still uncertain.

GBP/USD loses around 70 pips on the day but is still in the rotation zone of the last few days. Only a loss of the 1.2660 zone would pave the way for further losses that could be precipitated if the market anticipates a hard Brexit. 


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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.