ECB, EU summit and Brexit, Trump's threats and IMF outlook

10 abr 2019

Wednesday promises to be a difficult day for the euro and the pound. There are two extremely important events will take place today: the ECB meeting and emergency summit of EU leaders to consider UK request for further extension until 30 June, with the option of an earlier Brexit day if a deal can be agreed.

Let's start with the ECB meeting. Surprises are not expected by markets. The bet might be left unchanged. Everybody will be interested in details of the ECB long-term lending program. In general, we do not expect any bullish signals for the euro, but there should also be no reasons for its sales. In this regard, our position on the euro today is as follows: since the EURUSD is at the lower limit of the medium-term range, we give preference to buying with stops below 1.1170 and profit close to 1.1400.

The information that Trump is preparing to open up a new front in the trade wars could be the problem for the euro. This time he is going to attack Europe. The White House reported that they are considering to moves to impose tariffs on $11 Billion of EU Goods in response to Airbus subsidies, which was declared illegal by the World Trade Organization. The list of goods that come under attack includes not only airplanes and helicopters, but also products of the agro-industrial complex, in particular cheese and wine.

The EU emergency summit seems to be much less predictable by the results of the event and explosions of volatility in pound pairs by its results are very likely. April 12, the UK must leave the EU. Following yesterday's parliamentary vote, approval of the withdrawal agreement has not been given by the UK Parliament so it should be a “No-deal” Brexit. The option is unprofitable for both parties, so we believe that the summit is unlikely to end up being just shown to the UK at the door. This will definitely be a hit to the pound and in this case its fall will be rapid and strong.

Accordingly, the second alternative comes into play - to give the UK another chance. This is the most likely scenario. But he is also divided into alternatives. The first is that the EU satisfies May’s request and extends Brexit’s deadline until June. The second is that the EU is offering Britain a postponement for a long term (for example, a year). Since the initiative is on the EU side, it seems to us that the summit will end up with the EU’s agreement for a long delay. In general, both of these options are positive for the pound. So, as a basic plan for working with pound pairs for today is looking for points for its buying.

The International Monetary Fund on Tuesday cut its global growth outlook for the third time in a row. The IMF projects global economic growth of 3.3% this year. As expected, the economies of developed countries in 2019 will grow by 1.8%, and developing countries - by 4.4%. GDP of China and the United States should increase by 6.3% and 2.3%. This is another reason to pay attention to buying of safe-haven assets. Recall, our recommendation for buying gold on the intraday basis continues to be relevant.