Sterling had a mixed price action during yesterday’s session, with some step backs in what looks to be fixed related both against the USD and EUR. In the background, the first face-to-face meeting between Prime Minister and EU Commission President Ursula von der Leyen captured the attention of investors, with rival red lines being set out for the post-Brexit era. While Boris Johnson stressed the negotiations will not extend beyond the end of the year and alignment with EU rules are out of the table, von der Leyen assured that a full deal will be “impossible” by year-end and decisions will come with trade-offs. “Without the free movement of people, you cannot have the free movement of capital, goods and services”, said the President earlier in a conference. With Britain’s divorce deal unlikely to face further hurdles, post-Brexit negotiations set the scene for another year of uncertainty. As of today, the final vote of the Withdrawal Agreement Bill in the House of Commons could provide some short relief to sterling, as the solid Conservative Majority practically guarantees a smooth pass-through to the scrutiny in the House of Lords next week.


The single currency fell ill from continued USD strength yesterday, in another session of weak economic data in the Eurozone. Germany’s industrial production in November beat expectations this morning, with the monthly print growing by 1.1% over the revised October figure. However, the new year’s euro rally has faded on the back of risk-off moves of last, with the currency approaching back to its 50-days moving average. The Eurozone unemployment rate will be released at 10:00 ECT and various ECB members will capture the attention later on the day.


Geopolitical tensions between US and Iran appeared to cool down yesterday after President Donald Trump backed off from further military actions against the Middle East country. With Iran apparently “standing down”, as missile attacks were merely intended to send a message rather than to cause American casualties, Donald Trump promised further sanctions instead. The USD ruled as the main recipient of the renewed calm among G-10 pairs, with the NZD only marginally outperforming. The sharp immediate reaction in global markets following these events have mostly been corrected. WTI crude oil price retreated over 9% during the session, sitting in its 2020 lowest at the moment. The brief response in Treasuries and gold, the favored save-heaven assets amid these events, has also been fully reverted. The economic calendar returns back to the spotlight, with the traditionally market mover measure of the nonfarm payrolls expected tomorrow. Today, a bevy of Fed speakers face the cameras.


The loonie erased all of its gains in the first week of the year, after the de-escalation in the Middle East region dragged down the WTI oil price to its 3-weeks low. The unexpected 1.16 million barrels build up in oil inventories reported by the DOE added to the WTI plunge, firming the pressure on CAD. Housing data is released this afternoon and Bank of Canada’s Governor Stephen Poloz holds a press conference in Vancouver at 20:15 GMT.



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