EU Stalls, Draghi’s Swan Song Next

Brexit hangs in the balance as EU politicians put off the decision on a Brexit extension. The pound was the top performer once again while the yen lagged. GBP is now the 2nd best perfomer since the start of the year (behind CAD). The final ECB decision of Draghi's Presidency is due next (more below). A new (4th) Premium trade will be issued after/during Draghi's press conference.

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The pound found a short-term bottom at 1.2840 and rebounded modestly in another sign of dip-buying or short-covering as the Brexit clouds part. Yet uncertainty still remains high as the EU sends mixed signals on what kind of extension it will offer. Talk of a UK cabinet meeting will be held at 3 pm London time.

France is pushing for the shortest of extensions in the hope of ending the saga while Tusk, Germany and others are more inclined to a three-month extension to avoid the perception of playing politics. A longer extension may spark an election and that might cause some short-term GBP selling while a shorter extension would pave the way for a deal and boost the pound.

Looking to today, the main event is the ECB decision. Expectations for any kind of change in policy or guidance are nearly nil. The ECB made their move last month and will now play a game of wait-and-see. If anything, Draghi may try to put some positive spin on the economy as he departs. In all likelihood the market isn't going to react to it because data continues to struggle. On Wednesday, eurozone consumer confidence fell to -7.6 compared to -6.7 expected – that's the worst since January 2018.

Looking back at Draghi's term, he will be remembered as a great central banker who was dealt a terrible hand. He faced down the eurozone crisis, Brexit and austere fiscal policy and did everything he possibly could to combat them, while remaining an effective communicator throughout. Time will tell on whether the ECB pushed to far into experimental policy but at the very least he bought eurozone politicians years of time to make structural changes. Lagarde will have a tough act to follow.