In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.

Danske Bank

Following a week where ‘phase 0’ in a possible phased trade deal and further steps away from the Brexit abyss largely set the agenda in FX markets, focus may – eventually – turn to European central banks later this week. However, ahead of that, UK PM Johnson will likely have another go at passing his deal early in the week. EUR/GBP is likely to continue signalling an optimistic outlook as Johnson has become less feared by markets. Today, we think that will be enough to yield a sterling which lies in the lower end of our 0.85-0.90 target range. Near term, 0.85-0.875 is probably more the most likely range – needless to say, depending on how Brexit news unfold.

EUR/DKK broke above 7.4700 last week on the back of the combination of a sell-off in Euro fixed income market and a widening discount in FX forwards. In addition, Denmark's National bank has signalled patience with respect to the persistently weak DKK this year with its inactive approach to FX intervention. That is likely keeping potential sellers on the sidelines despite the pair trading close to historically high levels. In our view, we are likely to be stuck around these levels for a prolonged period of time. We saw the SEK strengthening last week and EUR/SEK broke below 10.80 at the end of the week on positive Brexit-related headlines and news of possible flaws in Swedish labour market statistics. Key this week is the Riksbank on Thursday, where at the very least we expect a verbal postponement of the rate hike, but more likely this will also be done via the rate path. If so, EUR/SEK should find its way towards 10.90, our 1M target, once again.

After last week’s relentless NOK weakness, we will look for evidence this morning that the domestic manufacturing sector remains in good shape (see Norway section above). Irrespectively, we think we need to see global energy stocks rebounding before the NOK can recover on a more sustained basis. For now, we remain sidelined in NOK due to the tricky technical environment, even if we think the latest weakness fundamentally has gone too far. Thursday’s interim Norges Bank meeting should not provide new policy signals; rather watch the Riksbank also for NOK direction. That said, the probability of another Norges Bank rate hike over the next 6M has risen substantially with diminished global risks and a much weaker-than-projected NOK.

Citi

GBPUSD had traded approximately 100 points below Friday's close (1.2984) and has been hovering around 1.29 for most of the day so far.

  • While we are left waiting on a meaningful vote from Saturday, importantly, the Lewin amendment passed 322-306.
  • The Letwin amendment is net positive because it has effectively reduced the risk No Deal on October 31 to zero and will bring onside more anti-No Deal rebels from the Gaukward Squad of ousted Tories and Labour Brexiteers.
  • We reiterate our structurally GBP bullish bias and we still like tactically buying dips
  • On Friday, our Deal probability was 40%. Following this weekend, we raise this to 50%. Our marginal base case vs the other scenarios, with risk that this trends higher as more switchers emerge.
  • Our usual Brexit next step and General Election scenario analysis tables can be found within this note.
  • Where is the next headline risk? Early indications are that next opportunity for price discovery on the deal via a vote in Commons will be Tuesday, not Monday, advises Pickett on the timeline. But this is mostly down to Speaker Bercow and subject to change.
  • We were also joined by Lord William Hague, former British Conservative Politician to provide his take on the latest developments.
  • It is thought that there could be enough votes to pass this proposed deal in a meaningful vote. It would likely find support from a number of people who voted for the Letwin Bill, which was designed to ensure a hard Brexit was avoided at the end of the month and that an extension letter to Europe was sent rather than anything to do with supporting the proposed deal or not.
  • In summary the government will need to keep a lead, if they have one, throughout a complicated process of getting this through the various stages of Parliament which may take time
  • The attitude of the EU is crucial and decisive here  would they grant an extension or not? If they do not extend then the deal will go through its various stages. In the event of granting an extension the deal will unlikely be ratified by Parliament. For now the EU is likely to keep quiet.

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