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Sterling Tumbles on Worries Over Negotiations With EU, Euro Dragged Down

Focuses in the forex markets turned temporarily from China’s coronavirus outbreak to Brexit. Both EU and UK expressed strong positions regarding up coming trade negotiations. Their stance reminds traders that risk of cliff-edge Brexit by year end remains. Sterling suffers steep selloff and drags down the Euro. On the other hand, stabilization in European stock markets lift commodity currencies and Dollar mildly higher.

Technically, prior bullish view in Sterling is dampened by today’s steep decline. Focus is back on 1.2977 minor support in GBP/USD. Break will likely extend the correction from 1.3514 through 1.2905 support. Break of 141.25 support in GBP/JPY’s corrective fall from 147.95 to 139.31 support. EUR/GBP is eyeing 0.8487 minor resistance and break will likely resume the corrective rebound from 0.8276 through 0.8595 resistance.

In Europe, currently, FTSE is up 0.36%. DAX is up 0.07%. CAC is up 0.15%. German 10-year yield is up 0.005 at -0.427. Earlier in Asia, Nikkei dropped -1.01%. Hong Kong HSI rose 0.17%. China Shanghai SSE dropped -7.72%. Singapore Strait Times dropped -1.19%. Japan 10-year JGB yield rose 0.0066 to -0.057.

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EU and UK express tough stance on trade negotiations

Both Euro and Sterling are under pressure today as EU and UK lay down the tone for negotiations with tough words. UK Prime Minister Boris Johnson said in London that the “beneficial magic” of free trade is “fading”. “Free trade is being choked, and that is no fault of the people, that is no fault of individual consumers.” It’s “he politicians who are failing to lead, the mercantilists are everywhere, the protectionists are gaining ground.” He added, “from Brussels to China to Washington, tariffs are being waved around.”

On trade negotiations with EU, Johnson said UK should not be obliged to accept EU rules in key areas. Meanwhile, UK is not going to insist that the EU follows all its rules. He added that UK does not intend to lower its own standards after Brexit. In major other ares, UK is ahead of EU in standards. And, if EU has worries about state aid, it should focus on France and Germany instead.

Separately, EU chief Brexit negotiator Michel Barnier said the EU will be “very demanding” for a level playing field with the UK during the negotiations. It’s the key to open the EU markets for zero tariffs and zero quotas. EU issued draft guidelines for negotiations covering economic partnership, the security partnership, and the institutional governance framework. Negotiations can begin immediately once the mandate is approved by the European Council at a special summit on February 20.

ECB de Guindos: Signs of global stabilization, but lots of uncertainties from coronavirus

ECB Vice President Luis de Guindos expected inflation to hover at current low levels over the six months. He also “started to see some signs of stabilization on a global level”. Risks are also less tilted to the downside. However, he still sees “a lot of uncertainties” surrounding China’s coronavirus outbreak.

He also urged that “completing the banking union is pivotal” for the performance of the Eurozone. Fiscal must play a role as side effects of monetary policy are becoming more tangible.

Eurozone PMI manufacturing finalized at 47.9, green shoots of recovery in sight

Eurozone PMI Manufacturing was finalized at 47.9, up from December’s final reading of 46.3. Markit noted there were slower falls in output, new orders and purchasing recorded. Nevertheless, business confidence improved to the highest level in 16 months.

Looking at some member states, Germany, Spain, Italy, Austria and the Netherlands stayed in contraction. But improvements were noted across all. Germany’s reading was at 11-month high of 45.3, Italy at 8-month high at 48.9, France at 2-month high of 51.1.

Chris Williamson, Chief Business Economist at IHS Markit said: “Eurozone manufacturing started 2020 with green shoots of recovery in sight… “The improvement adds to our view that the eurozone economy could see growth strengthen in the coming months, meaning the ECB will hold off with any policy changes and instead focus on its strategic review. However, key risks which could alter the brightening outlook include the threat of US tariffs and trade war escalation, Brexit-related disruptions to trade as well as uncertainty surrounding the impact of the Wuhan coronavirus.”

UK PMI manufacturing finalized at 50.0, but full revival in capital spending some way off

UK PMI Manufacturing was finalized at 50.0 in January, up from December’s 47.5. New orders, employment and business confidence rose. But new export orders declined for the third consecutive month.

Rob Dobson, Director at IHS Markit, said: “Th