The main takeaway of last week’s eventful trading activity, as we head into the final adjustment of portfolios before the year-end, is the settling of a new reality. Granted, in spite of all the wax and wane, we are weeks away from welcoming a new decade with the two most important macro risks of 2019 (Brexit, US-China trade war) to be stared through the rear mirror. It doesn’t mean this 2019 staple for news-watchers can be abandoned, far from it, as the market will remain sensitive to follow up headlines as Brexit and trade headlines will swiftly transition, both in tandem, into phase two. However, it certainly provides breathing room to divert the focus more decisively into central bank monetary policy divergences, liquidity actions, and in what looks likely to be an environment that unless major shockers, is setting the stage to be dominated by lower vol conditions. If this view holds true, and as the overall flows in the G8 FX indices indicate, we may see the perky Pound, the revitalized Aussie and the flying Kiwi continue to be firmly anchored based on the improved ‘risk on’ sentiment. I’d personally add the Canadian Dollar into this basket as another potential currency to take into account for a shift in order flow to a more positive bias. Should the groovy vibes in risk dynamics extend into 2020, watch for the Yen, Swissy and the US Dollar to be the candidates to suffer a continuation of the steadiest sell-side flows. When it comes to the Euro, it won’t be an easy ride, but if more evidence gathers that Germany growth slowdown is bottoming out, I wouldn’t be surprised if the Euro keeps showing a relatively benign outlook, all within a context of restrains in performance that comes with a negative rates’ currency.
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