UK Catches a Brexit Break

A hint that the EU is prepared to give the UK a workable Brexit deal sent sterling soaring on Wednesday. The pound was the top performer yesterday and today. Key US inflation is due at 13:30 London time, with the July core PCE price index expected at 2.0% y/y from 1.9%. Global equity indices are falling across the board on worries that the US-China trade isue shall remain unresolved. Note that the DAX trade stopped out earlier this week, rose 16 pts above the stop before plunging over 150 pts. a New Index trade has been posted, while the FTSE100 short is currently 140 pts in the money.

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“We are prepared to offer Britain a partnership such as there never has been with any other third country,” EU negotiator Michel Barnier said at a press conference at the same time that UK negotiator Raab was lamenting the difficulty of negotiations in UK parliament. 

The German foreign ministry later walked that back by saying the UK won't get special rules but after a small blip, cable continued higher and finished at the best levels of the day, up 150 pips to 1.3043. It was the biggest one-day percentage gain in the pair since January.

This is far from a deal but it's a signal the EU is prepared in aims of getting a decent deal done and not with the constant threat of a no-deal Brexit. A separate report said negotiations probably won't be concluded in October, citing negotiators, but Raab and Barnier have been publicly cordial and the chance of a November deal is rising.

The news comes at a perfect time for cable bulls. The CFTC report last week showed bets against the pair at the most extreme since May 2017 at -72K. It's been a one-way decline to 1.27 from 1.43 in mid-April and even a modest retracement would hit 1.33. Also note the divergence between CHF and CHF futures positioning.

Meanwhile in North America the spirit of deal-making was also in the air as Trump, Trudeau and Pana Nieto all expressed optimism about NAFTA negotiations. That helped the loonie higher for a fourth day.