by Tom Luongo, Tom Luongo:
Deal or No-Deal, when it comes to Brexit, the euro is toast. Markets, however, believe the fantasy of its survival. As we approach the end of July the euro clings to support at $1.11, mere pips away from a technical breakdown.
That breakdown will trigger a wave of asset liquidation and another round of negative headlines emanating from troubled German banks.
With 10 Downing St. now saying No-Deal is acceptable, the hard line negotiating tactics of the European Union have hit a rocky shore.
Because it looks like Boris Johnson is ready to give as good as he gets.
I’ve been saying this for a long time. The EU is not a tough nut to crack. They have no leverage in these Brexit negotiations.
What they had was a stacked deck of British officials negotiating with Brussels on Brussels’ terms.
It’s not a negotiation if both sides agree on terms. It’s a surrender.
The only negotiation that went on during May’s administration was with the British people on accepting the horrific treaty written by German Chancellor Angela Merkel’s staff and rubber-stamped by May.
Today Britain looks different, at least on the surface. The market is punishing them for entertaining No-Deal.
The pound is falling out of bed today below $1.24 because Johnson looks serious about re-opening negotiations or opting for No-Deal.
But here’s the thing. The eurozone is facing a recession. I‘ve talked about Germany’s freefalling economy before. It’s not getting any better. And it won’t if a no-deal Brexit occurs.
So the forex markets are offside today. Way offside.
Johnson came out and bypassed the Withdrawal Treaty completely saying let’s just move to Stage 2 of Brexit, the free-trade agreement.
You never would have heard that under Theresa May.
That’s why the pound is getting crushed today. At some point, however, that move will get overdone. The EUR/GBP pair is way overbought and was looking toppy before Monday’s massacre in the pound.
What’s clear, however, is that in the short term, the pound will be allowed to collapse to assist the ‘Remain’ case. As the media focuses on the pound falling it neglects the pound is now more attractive to U.S. investors.
It’s making Trump’s offer of a free-trade deal more attractive to wobbly Tory MP’s.
The pound has been over-valued for years thanks to being slaved to the euro-zone. President Trump knows this and this is why he backs Brexit as well as both Johnson and Nigel Farage.
It’s also why Trump is going after France for its new taxes on U.S. tech firms. The wine tariff is political cover.
Trump is attacking the French side of the brewing war for control of the EU. France’s President Emmanuel Macron, while ignoring the rising potential for domestic revolution via the Gilet Jaunes, has positioned himself as the de facto leader of the EU as Angela Merkel’s political power wanes.
And Brexit is the key to this. Macron wants to punish Britain for Brexit. He’d rather a no-deal than any concessions. Merkel will countenance a deal rather than lose the U.K. completely. Mike Shedlock is right, the EU is complacent now about a No-Deal but panic will soon set in.
No-Deal Brexit is very much on the table.