Article 50 and the Pound, with an Eye on the Dutch Election and the EUR

While the week ahead is a particularly busy one with the FED, the BoJ, the BoE and the SNB convening and announcing monetary policy decisions in the 2^nd half of the week, the day ahead is a particularly quiet one from a macroeconomic data perspective, the only material events on the economic calendar being speeches by Draghi and ECB members Lautenschlaeger, Constancio and Praet.

The speeches will likely garner some attention, particularly when considering the fact that it’s relatively unusual for a number of ECB members to be speaking on a given day.

Last week’s ECB Press Conference was followed by news of the Governing Council having discussed lifting interest rates, suggesting that a rate hike, ahead of an end to the asset purchasing program, is becoming likelier than not. Scheduled speeches through the day may provide an opportunity for members and the President of the ECB to dispel or affirm the rumours, providing the markets with a degree of forward guidance, the EUR having already responded to the Friday rumours, touching $1.07 levels ahead of the European session.

Draghi will certainly have the most influence, though the markets will likely to take the majority view, the ECB president known to generally be a drag on the EUR.

For the Dollar bulls in search of parity, with such a shift in market sentiment towards ECB monetary policy, this week’s FOMC economic projections will need to see quite an upward revision for the Dollar to have any chance of making a move ahead of the French elections, with the chances of a Le Pen victory seemingly easing, if the polls are anything to go by.

While there’s plenty for the markets to consider with respect to the EUR, the day ahead will have the markets focused on the Netherlands elections, noise from Turkey and Brexit.

On Brexit,

Expectations are for members of parliament to reject the additional terms proposed by the House of Lords, with a parliamentary vote to take place following an initial debate over the amendments in the early part of the European session. Assuming that the amendments are rejected, the House of Lords will then vote in favour or against the parliamentary vote, with time also having been assigned on Tuesday and Wednesday for MPs to consider the terms further, should the need arise.

The rebellion in the House of Lords that led to the amendments to the terms under which Theresa May will be permitted to invoke Article 50 is deemed to have lost steam and there is always the threat of the Conservative Party calling an early general election. Such an election would be timely for a number of reasons, the Labour on the ropes and in the process of self-destruction with the Tories also likely to look to remove the powers of the House of Lords as part of the election mandate, a more than likely Tory victory something the House of Lords will need to consider later today.

The pound should find support should the House of Lords back down on the additional terms later today, any prolonged backwards and forwards likely to, not only lead to a delay in Theresa May invoking Article 50, but also weigh on the pound, the markets expecting Britain to begin legally withdrawing from the EU this week.

On the Netherlands, the election and Turkey,

Things have certainly heated up in Holland ahead of the Wednesday’s election, with the Dutch barring Turkish ministers from being permitted to address Turkish expats in the Netherlands, the Dutch government banning a planned rally, while also refusing the landing of a plane carrying the Turkish foreign minister. The Turkish prime minister has since retaliated strongly, Erdogan saying that the Netherlands is acting like a ‘banana republic,’ while Dutch Prime Minister Rutte calls for the Turkish prime minister to apologise for Nazi remarks also made, though not just to the Dutch, but also the Germans, as governments across Europe raise concerns over Turkey’s government and democratic principles, the Danish Prime Minister postponing a planned meeting with Erdogan.

There have been threats of retaliation by the Turkish leader, as the Turkish Prime Minister looks to shore up support from Turkish expats across Europe ahead of a referendum on 16^th April, which will decide the fate of Turkey’s parliamentary system, the vote deciding whether Turkey will shift from a parliamentary to a presidential republic, giving ultimate power to Erdogan

The noise will unlikely hurt Rutte’s chances of victory this week, with only France having permitted rallies to take place over the weekend.

Wednesday’s election sees Wilders’ Party of Freedom vying to take a majority and de-Islamicize the country, whilst also bringing an EU referendum to the Dutch.

As things stand, Rutte’s People’s Party for Freedom and Democracy have the lead in the polls, the liberal party set to win between 23-27 seats. While Wilders is expected to come in a close 2^nd. The eventual outcome will depend on Rutte’s ability to get support from the other parties to achieve the 76 seats needed to form a coalition.

There is some uncertainty over who will join Rutte and whether there is any support for Wilders, though the view is that the extreme views of the Party of Freedom will likely find little support.

The markets have shown little concern going into the elections, the expectation of a Rutte led coalition, coming as support for Wilders continued to fall away since the beginning of the year.

The polls have caught out the markets before and the issues with Turkey certainly play into the hands of the populist parties. The markets will be watching the outcome closely, a surprise victory by Wilders expected to raise the stakes going into the French and German elections, a populist victory across the three member states an unthinkable for the establishment, the ECB and the markets.

While the votes and results will be out in the early hours of Thursday morning, before European markets open, the process of forming coalition could be a lengthy one and the longer it takes, the greater the pressure on the EUR…

At the time of the report, cable is up 0.42% at $1.22177, with the EUR flat against the Dollar easing from $1.07 levels going into the European session, the Dollar finding its feet following losses through the Asian session, the Dollar Spot Index recovering from an intraday low of 101.01 to 101.27, a 0.02% gain on the day.