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Brexit talk looms large

Brexit talk looms large

Sterling had a difficult day yesterday as the Brexit headlines took their toll. Against the US Dollar, the Pound hit a five-and-a-half year low of 1.4536 before recovering overnight to open at 1.4612 this morning. Market expectations of a UK Rate Hike have now slipped to March 2017.

European Retail Sales came in below forecasted levels but the unemployment figure was lower than expected at 10.5%, marking a third consecutive drop. Economic Sentiment Indicator results for December also came in at a four year high of 106.8, showing that those within the Eurozone think that the gloom is lifting. On Wednesday, Services PMIs out of Germany and the Eurozone beat expectations, with both indicators pointing to expansion in the services sector. These solid releases give the European Central Bank some breathing room with regard to further easing steps.

Price action in the EUR/USD continues to be dominated by the risk-off/on sentiment in the European markets, with the macro releases having virtually no impact on the currency pair. This morning, Germany’s industrial output decreased by 0.3% in November, after reporting a 0.5% growth seen in October. However, the country’s trade surplus shrank in November to €20.6 billion versus €22.3 billion previous.

Meanwhile over in the States we are due the first Non-Farm Payroll (NFP) of 2016. The forecast is another strong reading with markets expecting 200K+ jobs being added to the US labour market, while the unemployment rate is expected to remain unchanged at 5%. Even more notable, the year-on-year growth rate in average hourly earnings will most likely rise to 2.7%, the highest in almost six years. Despite the relatively dovish nature of the December Federal Open Market Committee (FOMC) minutes, the improvement in wage growth and strong NFP figure could prompt the FOMC to a more hawkish outlook at the January 27th interest rate decision. This all leads leading to more Dollar strength across the board.   

Data to watch: US Unemployment Rate (Dec), Non-Farm Payrolls (Dec) 13:30.

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