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No-deal Brexit fears linger, all eyes on CPI reports

No-deal Brexit fears linger, all eyes on CPI reports

It was a mixed session in Europe yesterday as the concerns about a no-deal Brexit re-emerged.

In the wake of his major electoral victory last week, Boris Johnson said he wants to introduce a law that will prevent the transition period from being extended, but with the comes the possibility of a no-deal Brexit. In light of the news, equity traders cut their long position. It’s worth remembering the major European stock markets enjoyed a bullish run recently, so we witnessed some profit taking yesterday. The pound bore the brunt of the jitters, which helped the FTSE 100 finish the session fractionally higher.

The UK is set to leave the EU on 31 January, and then the transition period will kick in until the end of the year. It would appear that Mr Johnson doesn’t want the transition period to run on and on, so he intends to pass legislation that will prevent that possibility. Even if a no-deal Brexit does happen, it won’t take place for over a year, so equity traders are not overly worried.

On the other hand, the pound sold-off aggressively yesterday on the back of the no-deal fears. All of the gains the pound made against the US dollar and the euro since the exit poll on election night have been reversed .Keep in mind the pound was broadly pushing higher in the months ahead of the election.

The UK posted solid employment data yesterday, but that got washed aside with the Brexit issue The unemployment rate held steady at 3.8% - the lowest rate since 1975, and the average earnings figure dipped to 3.5%, from 3.6%. The jobs market is in rude as people are in work and earnings are respectable. It wasn’t all good news from the UK. The CBI industrial orders expectation reading fell to -28, the lowest since September 2009, but political uncertainty has been doing the rounds recently.         

The positive post US-China trade deal sentiment is still circulating as the S&P 500 racked up yet another record higher. The latest building permits and housing starts from the US both hit 12 year highs, so it is fair to say the US housing market is strong.

Last night, it was revealed that Japan’s November imports fell by 15.7% on an annual basis, while economists were only expecting a drop of 12.7%. Exports fell by 7.9% - which was its twelfth consecutive monthly decline. The figures showed that domestic demand as well as external demand are weak. Stock markets in Asia are mixed.  

At 9am (UK time) the German Ifo business climate will be posted and economists are expecting an uptick to 95.5, from 95 last month. Keep in mind, the 94.3 reading in August was the lowest since late 2012.

The UK inflation data will be in focus and the CPI reading is tipped to dip 1.4% from 1.5% in October. The core reading, which is deemed to be a more accurate reading of underlying demand is expected to remain at 1.7%. It is possible the no-del Brexit fear will continue to dominate the headlines, like it did yesterday.     

CPI in the eurozone is predicted to remain at 1%, while the core reading is tipped to stay at 1.3%. The ECB’’s aim is to push up CPI to close to 2%, but we won’t be getting near that target for some time.  The reports will be posted at 10am (UK time).

Economists are predicting that headline Canadian CPI will jump to 2.2% from 1.9%, and the reading will be posted at 1.30pm (UK time). The latest set of employment numbers from Canada were underwhelming, so any weakness in the CPI rate could spark chatter about a rate cut.

The US Energy Information Administration inventory report will be released at 3.30pm (UK time), and oil inventories are expected to drop by 1.9 million barrels, while gasoline inventories are tipped to increase by over 2 million barrels.  

EUR/USD – has been pushing higher since late November and while it holds above the 100-day moving average at 1.1064, it might retest 1.1179. A move to the downside might target the 1.1000 area. 

GBP/USD – has been in a bullish trend since early September and if the positive run continues it might target 1 3600. A pullback might find support at 1.3361 or 1.3200.

EUR/GBP – recently fell to a level last seen in July 2016, and if the bearish move continues it might target 0.8200. A rebound in the currency pair might target the 0.8600 area.

USD/JPY – while it holds above the 50-day moving average at 108.64 it could target 110.00. A move back below the 50-day moving average might bring 107.88 into play.     




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