Markets were generally quiet as the two big deals on both sides of the Atlantic remained elusive, explains Boris Schlossberg of BK Asset Management.
In Washington DC, the prospects for a stimulus package remained strong, but lawmakers continued to negotiate without a firm deal yet. In Brussels, the Brexit deal continued to be mired in obstacles surrounding fishing rights and officials were making anxious comments about being “far apart” which weighed on the pound in morning London dealing with the pair testing the 1.3500 level before bouncing a bit.
Overall sentiment remains positive on both fronts as markets believe all parties will ultimately reach a deal. The two stories are key drivers of risk-on moves and as we noted all week long the massive rallies in both equities and high-beta FX have been underpinned by the assumption that Brexit and stimulus are done deals.
For now, that remains operating principle and given the massive stakes in each deal the likely outcome for both. But with price action so heavily skewed to the upside and positioning clearly stretched we certainly have scope for a correction into the year-end, so the risk remains to the downside as both FX and equities could see a “sell the news” reaction.
The eco calendar is barren today save for Canadian retail sales and the focus will be squarely on headlines from DC as well the quadruple expiration in equity and derivative markets as Tesla (TSLA) is added to the S&P 500 (SPX). Both the size and the volatility of the stock could create lots of price-insensitive moves that could exacerbate the action into the close of the week.
By Boris Schlossberg, Co-Founder, BKForex.com
