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EU warns UK 2020 trade deal "impossible"

GBP - British Pound

GBP/USD dipped under 1.31 yesterday as new EU Commission President, Ursula von der Leyen warned that getting a comprehensive trade agreement between the bloc and the UK by year-end deadline was "impossible." At a speech at the London School of Economics former alumna, von der Leyen stated that the deadline was "very tight" and insisted to get a full trade deal would need an extension to be agreed between the two sides. Given that PM Boris Johnson intends on putting in place legislation to rule this out it seems some sort of miracle is going to have to happen or Johnson and the Conservatives will have to budge to stop the UK defaulting to WTO rules on 1st Jan 2021.

The comments from UvdL were hardly surprising so there was no dramatic sell-off in sterling however it did fall to 1.3080 before recovering and retaking the 1.31 handle later in the day. Trade negotiations should start proper in early Feb and this is likely to be the main driver of the pound throughout the year. The possibility of the UK leaving the EU without a transition agreement hung over sterling like a guillotine for much of 2019 pushing cable briefly below 1.20 in early September before it rallied for the rest of the year. The prospect of another hard deadline looming is likely to do little for the pound's prospects as we head deeper into 2020 despite, as is all but guaranteed given the Tory majority in the commons, the UK Withdrawal Agreement Bill is signed off later this month.

The highlight for the pound today is a speech by outgoing Bank of England Governor, Mark Carney. He is giving opening comments at The Future of Inflation Targeting Conference in London. Carney is due to hand over the reigns to Andrew Bailey in mid-March so expect focus to be drawn more and more to comments from Bailey the closer we get to him taking the top job. GBP/USD is at 1.3105 with GBP/EUR at 1.1795.

Key Movers

Military hostilities between the US and Iran seem to have come to an end for the time being after the US's assassination of General Qasem Soleimani and Iran's retaliatory "across the bows" strike on US airbases in Iraq. It appears Iran wasn't intending on hitting the bases direct rather than showing it could have had it wished. In a press conference in Washington Donald Trump advised that the Iran was "standing down" leading equity markets and other risk assets to push higher as it appears tensions have been diffused for now.

After hitting a low of 107.65 earlier in the week, the key risk barometer USD/JPY is now back above 109 and the commodity currencies also rallied. Most stock markets have opened higher this morning with extra confidence garnered from a better than expected US ADP Non-Farm Employment Change reading yesterday afternoon. An expected 160k for December turned out to be 202k with the previous month revised up from 67k to 124k. This week's key data is Friday's Jobs report from the States with Non-Farm Payrolls expected to show 162k a rise last month.

Australia posted a better than expected trade balance figure for November posting a surplus AUD5.8b for the month however this pales into insignificance given the devastation the wildfires are wreaking throughout the country. Some brief respite was seen with rain in parts of New South Wales however expectations are that the situation will deteriorate as we head to the weekend as temperatures again start to rise and winds increase.

Its been a quiet week from the Eurozone with next week's German ZEW Economic Sentiment reading the next major data of note. EUR/USD trades at 1.1115.

Expected Ranges

GBP/USD: 1.3040 - 1.3170 ▼

GBP/EUR: 1.1710 - 1.1830 ▼

GBP/AUD: 1.90 - 1.9160 ▼

GBP/NZD: 1.9680 - 1.9840 ▼

GBP/CAD: 1.6960 - 1.7120 ▼