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Winding down for Christmas

Winding down for Christmas

GBP
Despite the latest Brexit news, where the EU leaders agreed to move to the next phase of negotiations with the UK, the EU indicating that trade negotiations would not start until March 2018 had a negative Sterling impact. This is despite there being no realistic possibility of concluding a deal before the 2019 exit deadline even if talks started quickly. Sterling suffered intense selling pressure on Friday.

Cable is seen cheering the weekend’s comments from the UK PM Theresa May in the Sunday Telegraph, citing that ‘amid all the noise, we are getting on with the (Brexit) job.’ Her comments negated the headlines published by the same newspaper that cited Theresa May faces cabinet row over Brexit as the EU warns there is ‘no way’ the UK can have a bespoke trade deal.

Today in the UK, we see the CBI Distributive Trade Survey but the main market-mover still remains to be Brexit negotiations.

USD

The US New York Empire manufacturing index declined to 18.0 for December from 19.4 the previous month and was slightly below consensus expectations. Most components were robust, however, while there was a stronger rate of increase in both input and output prices. Industrial production rose 0.2% for November following a 1.2% increase previously with little impact.

Cable closed the week 1.3322 after a fall of just below 1% from the 1.3430s Friday morning. Against the Euro, a similar story but Dollar gains were less drastic as the week closed at 1.1752 after being just above the 1.1800 level earlier on Friday.

As the year winds down, attention for the Dollar will largely centre around the President Trump’s tax reform bill. At the end of last week, the Dollar received a boost in confidence from increased optimism surrounding the bill. The US House of Representatives are expected to vote on the reforms on Tuesday, with the Senate voting later in the week. If all goes to plan, the Dollar bulls will be satisfied before Christmas as Trump will be expected to make it law before then.

EUR

Friday saw the European summit formally agree on moving to Phase Two of Brexit negotiations, debating trade, but concluded that the UK is expected to follow the EU rules during the transition phase of Brexit. This includes the ultimate rule of the European Court of Justice, a rule likely to face dissent in the UK.

The German Social Democrats agreed to start talks in January on forming a grand coalition. Elsewhere, a government deal was secured in Austria as the Freedom Party joined the coalition. Also, the Eurozone trade balance reached a surplus of 18.9 billion EUR in October.

Euro traders will keep a close eye on inflation data today, with consumer prices expected to have risen by 0.1% in November. Given that the European Central Bank (ECB) has updated growth projections and latest PMI data pointed towards a stronger economy, inflation remains the missing ingredient. Any surprise, on the upside or downside, will likely have a strong impact on EURUSD moves today.

Data To Watch:
10:00 EUR Consumer Price Index – Core (MoM) (Nov)
10:00 EUR Consumer Price Index (YoY) (Nov)
10:00 EUR Consumer Price Index – Core (YoY) (Nov)
10:00 EUR Consumer Price Index (MoM) (Nov)
15:00 USD NAHB Housing Market Index (Dec)

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