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We ended off this past week with another surprising jolt of volatility. However, where the sudden surge in activity for the previous week end was centered on equities and volatility through a ‘risk theme', this move was concentrated on a few currencies. The motivation was the EU-27 leaders summit in Bratislava where the topic of discussion was the Union's future and negotiation stance with the Brexit discussions with the UK. As expected, the official view was one where the EU would not allow the withdrawing member to ‘cherry pick' from the privileges those that remain. What truly unsettled was the speculation that the United Kingdom was preparing to withdrawal from the single market – which even EC President Donald Tusk weighed in on. The Sterling suffered the worst of the impact with the Euro falling in sympathy. The Dollar, in turn, drew the greatest benefit.
The Brexit path will be long and winding with considerable impact on those markets and currencies directly in its gravity, but there is limited immediacy to the theme. Short of key updates in position and rhetoric around the negotiation approach from the UK and its collective counterpart, the volatility will fade and perhaps the deep discount with it. That may offer trade opportunities in itself so long as it further conforms to the broader trading landscape. As it happens, the horizon looks treacherous for the global markets ahead. The combination of the Federal Reserve and Bank of Japan rate decisions ahead look like a financial Mt. Everest. Both meetings carry critical weight for their respective currencies and assets; but they also tap far deeper fundamental wells of systemic stability.