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Pound pulls a sick on Blue Monday ahead of May’s latest speech.

By Alex Edwards

The pound fell vs. the US dollar on Friday as investors re-positioned in anticipation of potential negative Brexit headlines in the weekend papers. They didn’t quite eventuate, and GBP/USD has traded a flat range since markets opened this morning. In terms of getting any deal across the line, PM May is said to be seeking to convince various Brexiteers within her own party as well as DUP MPs by asking EU members for assurances, or better, on the Irish backstop. It’s thought that cross party talks would be a waste of time, with Labour MPs unlikely to support a “Tory” deal and/or keen to pin some blame in the future.

The PM will set out how she intends to proceed with the withdrawal agreement today, as she addresses parliament. MPs will also be given the chance to table amendments to any potential deal, one of which could mean we don’t end up with a no-deal. Article 50 could also be suspended if a withdrawal agreement isn’t agreed by this time next month.

The PM’s speech is the main event today and would be anyway even if any economic data was due for release. We expect GBP/USD to continue trading a narrow range in the lead up, sub 1.29 for the most part.

The dollar finished last week on a strong note as investors appeared more hopeful on a US-China trade deal. It firmed up against most major currencies including GBP, EUR and JPY, supported too by generally better than expected US economic data by way of Industrial Production.

In other news over the weekend, China’s GDP printed at 6.4% yoy vs. expectations for 6.6%, its slowest rate since 1990, raising concerns for the knock-on impact this could have on the global economy. Risk appetite has turned a little more averse, but the effect on currencies, including the dollar, hasn’t been significant.

There isn’t much by way of US economic data due this week and so most traders will be focused on the ongoing US-China trade headlines. Risk events such as Brexit developments may also have an impact on the greenback and general market risk appetite.

The euro was on the back foot for the most part last week. It was further undermined by the release of weaker than expected European data on Thursday and Friday including Final CPI and Current Account. German PPI has also been released in the last hour, and just like the data last week, printed weaker than expected at -0.4% vs. -0.1%.

It’s a busy week this week for European economic data with German ZEW, European-wide Flash Manufacturing and Services PMI and the ECB monetary policy announcement and press conference all due. With important Brexit developments on the cards, we could see some increased volatility in the EUR/GBP pair through the week.

The Australian dollar descended against a stronger greenback on Friday and we saw the pair dragged back under the 0.72 level. The USD index rose thanks to a lift in investor sentiment on hopes of progress on US-Chinese trade tensions; a news report that China had offered to reduce its trade surplus with the US to zero by 2024 was welcomed by traders.

The release of weaker than expected Chinese GDP over the weekend has put further selling pressure on the aussie overnight and it now trades closer to the .71 figure, rather than .72.

The Canadian dollar bounced off 9-day lows on Friday, edging higher into the weekly close on the back of renewed trade optimism. Softening oil prices forced the loonie towards year to date lows before rumours the US treasury department was considering lifting tariffs on Chinese exports helped alleviate trade related tensions.

While the CAD has outperformed its G10 peers so far this year, we expect gains to moderate through the near term. Canada’s economy has softened through recent months leading many analysts to downplay expectations for RBC activity through the first quarter. Many investors see the RBC leaving rates on hold at least until April as oil prices weigh on broader price pressures and the pace of growth across the labour market slows.

The New Zealand dollar edged lower into the close on Friday edging back below 0.6750, almost a full cent lower than its weekly high. Trade optimism helped drive a USD recovery and forced the Kiwi back toward technical supports.

The NZD has struggled to mount any significant upward momentum through the last 2 weeks as market demand for risk continues to ebb and flow on broader global trade and performance concerns. Weaker than expected Chinese GDP over the weekend is proof of this, with the kiwi falling again overnight in response to the news.

Kiwi traders will now likely be turning their attention to Wednesday’s CPI print. Analysts expect inflation to fall short of the RBNZ 2% midpoint. A soft read may prompt the RBNZ to consider a move away from neutral and bring forward a rate cut in a bid to stimulate activity and price pressures in an otherwise stagnant economic environment. While risk demand continues to struggle in mounting momentum the NZD will likely meet resistance on moves approaching 0.68/0.6850 with supports in play at 0.6710 and 0.6650.