News & analysis


The pressure is piling onto Brexit talks the longer they go on without a deal being struck as the December 31st deadline rapidly approaches, while national legislatures still need to pass the deal too. Michel Barnier this morning stated that the UK has reduced its terms on fishing according to the Telegraph. According to the article, the UK could accept as low as 60% of the value of stocks from UK seas, down from 80% previously. These concessions haven’t pleased many inside of the EU, however, as France warned Barnier that they may veto an EU-UK trade deal if it doesn’t like the terms. President Macron has been one of the main voices on fishing rights throughout negotiations and continues to pile on the pressure. Michel Barnier has remained non-committal on whether he’d allow bloc authorities to examine draft texts of any pact. Despite the political pressure, sterling has retraced some of yesterday’s losses in today’s session, trading 0.3% higher as Barnier states a deal is too close to call, despite headlines yesterday suggesting that warnings of a no-deal exit were issued to EU authorities.


The euro started today’s session in the green to mark an extension of the previous two-day rally, allowing EURUSD to set a new 32-month high. The currency shrugged off the extension of the German lockdown into mid-January as hopes for an upcoming vaccine are dominating markets. The German government will reconvene with the 16 regional leaders on January 4 to reassess the containment measures. Meanwhile, today’s eurozone calendar is packed with Purchasing Managers’ Index data from Spain, Italy, France, Germany and the eurozone, with the latter three releasing final readings. Spanish and Italian composite and services PMIs both printed above expectations but below the prior reading, while the French final readings exceeded the preliminary figures. The German composite index fell to 51.7 from 55 in October, marking the lowest reading since June 2020 while remaining above the expansionary 50-mark. Finally, the eurozone services and composite index remained largely unchanged at 41.7 and 45.3 respectively and printed only slightly higher than the preliminary readings. The euro took the PMI news negatively overall, putting a pause on the rally for now. With vaccine hope currently dominating FX price action, the impact of the PMI readings on the euro may be short-lived. Nevertheless, the PMIs help to complete the general narrative of how the eurozone projections are looking. Later this morning at 10:00 BST, markets turn to eurozone retail sales from October which are set to show a 0.7% MoM increase from September.


The dollar has remained in full retreat over the last 24 hours, reaching a fresh 31-month low against the euro and remaining well on the back foot against most major currencies. The biggest macro story in the US remains a bipartisan $908 billion stimulus proposal. House Speaker Nancy Pelosi and Senate minority leader Chuck Schumer both agreed to use the proposal as the basis for renewed stimulus talks. The starting number is a far cry from the Democrats last attempt, a $2tn package that failed to pass the Republican-controlled Senate before the US election. Some $180 billion of the proposed package would go to extending extra pandemic unemployment benefits, providing an additional $300 a week for four months. The ultimate impact of a given stimulus package on the dollar is difficult to judge; weakness is one plausible outcome as it raises longer-term inflation prospects while monetary policy is set to remain loose. However, the dollar was already weakening before the new stimulus deal was announced, so caution should be taken in fitting this narrative to the trend. Yesterday research firm ADP released its estimate of monthly payrolls growth, which fell to 300,000 for November. Official figures are released on Thursday and may present further woes for the beleaguered US dollar. Weekly initial jobless claims will be released today at 13:30 GMT, followed by the final readings of the services Purchasing Managers’ Indices from Markit and ISM at 14:45 and 15:00 respectively.


A continuing theme for the loonie this week is printing fresh highs in the overnight session, but struggling to close the day out at those levels. In that regard, it is much the same today as the loonie printed a fresh high in the Asian session, but has since retreated to sit flat on the day as the greenback trades mixed across the G10 currency board. With little directional assistance from the broad dollar and a light day scheduled in terms of economic data, the recent trend in USDCAD may be the only signal for how today’s session will pan out, unless the dollar trend becomes more definitive.



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