Risk conditions were broadly neutral during Monday with a lack of conviction as vaccine hopes still protected sentiment.

Risk conditions were broadly neutral during Monday with a lack of conviction as vaccine hopes still protected sentiment. Equity markets overall were little changed with reservations over near-term coronavirus developments limiting support.

The dollar recovered from intra-day lows, but failed to gain traction amid expectations of 2021 losses amid global reflation. EURUSD settled around 1.2150 with solid support on dips.

Sterling pared gains sharply as a slightly more constructive EU Brexit rhetoric was offset by fundamental reservations over the economy. Commodity currencies retreated from best levels amid underlying pressure for a correction.

Euro-zone industrial production increased 2.1% for October after a 0.1% gain previously with a year-on-year decline of 3.8% from 6.3% previously and above consensus forecasts of a 4.4% decline. There was wider caution over the near-term outlook as coronavirus restrictions were set to tighten in several countries as Germany announced further restrictions during the Christmas and New Year period.

The Euro maintained a firm tone into the New York open with support from reduced expectations that the Brexit trade talks would end up with no deal. The dollar also remained on the defensive as commodity currencies made renewed headway. There was little change as Wall Street opened, but the dollar then secured a sharp recovery as EUR/USD stalled around 1.2175. The pair dipped to lows near 1.2120 as commodity currencies also lost ground.

There was caution ahead of the Euro-zone business confidence data due on Wednesday with expectations of further stresses within the services sector as coronavirus restrictions continue to undermine activity. There were still expectations of a dovish Federal Reserve statement on Wednesday which limited US currency support.

Neither currency was able to secure a decisive advantage and EUR/USD settled around 1.2150. The dollar overall remain on the defensive on Tuesday amid expectations of reflationary polices and losses in 2021. EUR/USD was held just below 1.2150 with some reservations that a dip in liquidity could boost the dollar.

The dollar continued to lose ground into Monday’s New York open and USD/JPY dipped to 5-week lows near 103.50 against the Japanese currency. A wider reversal triggered a sharp recovery to the 104.00 level later in US trading.

Markets continued to monitor US fiscal stimulus developments closely as the political rhetoric continued. Senate majority leader McConnell called for a fresh bipartisan effort and there were signs of progress on a coronavirus relief package, but no definitive developments. The US Electoral College confirmed Biden as winning the US election and he launched a strong attack on Trump for continuing legal action to challenge the result.

Chinese industrial production increased 7.0% in the year to November from 6.9% previously and in line with consensus forecasts while retail sales increased 5.0% over the year. There were some reports that the Bank of Japan would increase corporate bond purchases at Friday’s policy meeting, although the overall impact was limited. Risk appetite held steady and USD/JPY held just above 104.00 at the European open.

EU Chief Negotiator Barnier stated that talks on the level playing field had been hard, but they were moving in the right direction and that there was a narrow path to reaching a trade deal with the UK. EU Commission President von der Leyen added that the structure of a deal looked fair, but there were still important details to work out to ensure fairness.

Sterling maintained a strong tone following the more positive rhetoric from EU officials, although uncertainty inevitably remained high and UK officials were broadly downbeat on the prospects. There were also important concerns over potential disruption to trade at year-end amid fears that there would be no time to implement an agreement even if a deal is secured within the next few days.

Markets were wary over very sharp Sterling moves, especially with liquidity gradually fading towards the year-end period. GBP/USD dipped sharply towards the European close with a retreat to near 1.3330 from 1.3440 highs GBP/EUR recovered to near 1.1100.

Sterling was undermined to some extent by news that London would be placed into the tier 3 coronavirus alert level. Global risk appetite held firm on Tuesday which helped cushion the UK currency. Unemployment increased to 4.9% in the 3 months to October, below expectations of 5.1%, but the unemployment claimant count increased 64,000 for November and payrolls declined again. Reaction was limited with GBP/USD trading below 1.3350.

Economic Calendar

07:00GBP Average Earning Including Bonus(OCT)2.20%1.30%
07:00GBP Claimant Count Change(M/M)(NOV)50.0K-29.8K
07:00GBP Unemployment Rate(OCT)5.10%4.80%
07:30CHF PPI (M/M)(NOV)0.00%
07:30CHF PPI (Y/Y)(NOV)-2.90%
09:00CPI (EU Norm) Prelim MM(NOV)0.20%-0.10%
09:00CPI (EU Norm) Prelim YY(NOV)-0.20%
09:00CPI (EU Norm) Final YY*(NOV)-0.30%
09:00CPI (EU Norm) Final MM*(NOV)0.00%
13:15CAD Housing Starts(NOV)222.0K214.9K
13:30USD Export Price Index (M/M)(NOV)0.30.2
13:30USD Import Price Index (M/M)(NOV)0.20%-0.10%
14:15USD Capacity Utilization(NOV)72.80%
14:15USD Industrial Production(NOV)-5.30%
21:00USD TIC Net Long-Term(OCT)108.9B
23:50JPY Merchandise Trade Balance Total(NOV)871.7B
23:50JPY Exports (Y/Y)(NOV)-4.5-0.2

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.