European markets and US futures are trading lower as investors focus on the rising tension between the US-China trade talks and investors are largely concerned about the earning season despite the fact that Goldman Sachs (NYSE:GS) printed a blowout number yesterday. Investors are paying attention to the ongoing investigation by the US about Huawei (SZ:002502) technologies for stealing their trade secrets. This isn’t going to break the deadlock which is currently facing on trade talk. Generally speaking, risk assets have performed well so far this month because if you look at the overall progress of the major indices, all of them are holding on to some strong gains.
We have seen another surprise in British politics, Theresa May survived a vote of no confidence in the parliament yesterday. The prime minister has a strong come back after a string of brutal losses and the fact is that her victory shows that the opposition party isn’t strong enough to take the control.
Perhaps, it is more down to their nonfriendly market policies. For now, the question of general election is pushed back into the box. Her victory has sent a strong signal in the parliament and she has invited the opposition leaders to come work with her and break the deadlock. The general feeling is that her recent victory will be able to get her across the line and somehow MPs will show their support for her upcoming variant version of Brexit deal.
Moving on from here, traders are going to keep a close eye on the possibility of every scenario taking place. The first one among of them will be the extension of Article 50 so that the government has enough time to strike a divorce deal before the Brexit date. No one wants to have a disorderly Brexit. The extension can only be agreed by the EU if they see that Theresa May will be able to secure enough votes (321) so that she can win the majority in the House of Commons.
The most exciting move that we have seen on the back of this is in the EUR/GBP pair. The pair touched a level which we have not since December and the move towards the 0.88 looks solid for now. Sterling’s strength is clearly picking up momentum. The GBP/USD pair also made another higher since she lost the Brexit vote and the fact is that as long as the support of 1.2668 remains intact, it is likely that the path of the least resistance is skewed to the upside. Investors also need to be mindful about the current trading range of 1.2668 to 1.2930 and only a break of this would establish another trend.