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From the Floor: 'No relief for the UK' — #SaxoStrats

   • NOK on the move after oil investment survey release, Q2 GDP beat
   • EURUSD pushes higher on comments from ECB's Hansson
   • GBP in free-fall as Brexit talks show EU in the driver's seat
   • Bullish EIA report sees limited reaction in crude oil
   • Cotton, gasoline rise as tropical storm Harvey heads for Texas

By Michael McKenna

As Brexit talks continue, it is increasingly obvious that Brussels and not London is in the driver's seat, and FX markets have taken note. As Bloomberg reported Tuesday, British prime minister Theresa May's apparent turnaround on the European Court of Justice means "that European Union law will influence the UK long after Brexit" – a circumstance that hardly reflects the popular will expressed by the 2016 vote.

"There's no relief in sign for the UK," says Saxo Bank head of forex strategy John J Hardy, adding that "London just can't put up much of a fight" at the negotiating table. The outcome, predictably enough, has been a runaway decline in sterling with cable down over one Big Figure from Monday's open. 

The pattern is even more visible in EURGBP, which shot from the 0.9160 area Wednesday to an overnight high north of 0.9230. "We could see a parabolic move in EURGBP," says Hardy, noting that the euro's strength was boosted yesterday by European Central Bank policymaker Ardo Hansson's stating that the common currency's high level is not problematic and simply reflects the economic momentum of the region.

Hansson's comments also saw EURUSD return to its recent highs, with EURNOK also in focus on a Q2 GDP beat out of Oslo. 

"9.25 is the area to watch in EURNOK," says Hardy.


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Source: Saxo Bank 

Wednesday also brought the latest US inventories data from the Energy  Information Administration, and while the report was bullish for crude, showing a 3.327 million barrel drop in stockpiles (versus an expected decline of 3.1m), Saxo Bank's head of commodity strategy Ole Hansen says that prices stayed stubbornly still overnight.

"[The Asian session] saw WTI crude trade in a $0.10 range and Brent in a $0.15 one," says Hansen. He adds that the market is currently placing a great deal of focus on Libya, whose ongoing civil war has resulted in oil fields closing and opening in a volatile fashion, reflecting the government's shaky control over key infrastructure.

The beheading of 11 Libyan National Army soldiers south of Tripoli  Wednesday places the instability in sharper focus with Hansen noting that Libya's largest oil field – the 280,000 barrel/day Sharara field – remains closed due to a blockade.

Finally, Hansen reports that another factor may be primed to impact energy markets as tropical storm Harvey threatens to become a hurricane ahead of hitting Texas' Gulf Coast late Friday (according to the most recent projections).

"The Gulf Coast," says Hansen, "is home to 30 refineries with a 7 million barrel/day capacity, so this storm has [already seen a spike in gasoline prices]". According to CNBC, the Gulf Coast region is home to 31.6% of the entire US refining capacity, making Harvey an enormous risk event for the US energy sector.

Today's data calendar brings a UK Q2 GDP revision at 0830 GMT, the US out with home sales data at 1400 GMT, and Japan releases CPI figures at 2350. 

Saxo Bank's head of FX options Dan Juhl-Larsen will hold a webinar on FX options trading at 1330 CET (1130 GMT), and you can sign up here to join.

Corpus Christi
Oil rig under construction near Corpus Christi, Texas: The Gulf Coast is a major refining stronghold and a direct hit by a category 1 storm could cripple the region's facilities. 
Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank
helicongrowth helicongrowth
one thing that stood out is the speed of the fall of the USD index from early 2002 to end 2003, giving up nearly 30% in about 20 months. ie when it goes it can go......


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