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Sterling Mildly Higher, But Upside Capped by Conflicting Brexit Messages

The forex markets are relatively mixed today. Sterling is generally higher but it’s capped by conflicting messages regarding Brexit trade negotiations. Canadian Dollar is currently second strongest, with help from mild strength in oil price. On the other hand, New Zealand Dollar is the worst performing, followed by Euro and Swiss France. Dollar is mixed, awaiting more guidance from US stimulus stocks and FOMC policy announcement tomorrow.

Technically, EUR/JPY is trading back below 126 handle at the time of writing, suggesting that retreat from 126.74 is extending lower. We’ll firstly see if that would come with a pull back in EUR/USD through 1.21 handle. Or USD/JPY would break through 103.51 support to extend larger down trend. At the same time, EUR/CAD appears to be rejected by 1.5540 minor resistance. Break of 1.5402 temporary low would resume the fall from 1.5710 to 1.5313 low. That could be an indication of more weakness in Euro instead.

In Europe, currently, FTSE is down -0.38%. DAX is up 0.94%. CAC is up 0.34%. Germany 10-year yield is down -0.0037 at -0.621. Earlier in Asia, Nikkei dropped -0.17%. Hong Kong HSI dropped -0.69%. China Shanghai SSE dropped -0.06%. Singapore Strait Times dropped -0.05%. Japan 10-year JGB yield dropped -0.0105 to 0.003.

US Empire State manufacturing dropped to 4.9, but employment posted strongest gains in months

US Empire State manufacturing index dropped to 4.9 in December, down from 6.3. New orders increased marginally, and shipments were modestly higher. Inventories continued to move lower, and delivery times edged up. Employment posted its strongest gain in months, and the average workweek lengthened somewhat. Input prices increased at the fastest pace in two years, while selling prices increased at about the same pace as last month.

Import price index rose 0.1% mom in November, below expectation of 0.3% mom.

From Canada, manufacturing sales rose 0.3% mom in October, below expectation of 0.5% mom. Housing starts rose to 246k in November.

ECB Rehn: New PEPP envelop is a ceiling, not a target

ECB Governing Council member Olli Rehn said that the new EUR 1.86T “envelop” of the central bank’s Pandemic Emergency Purchase Programme is not a target but a ceiling for now”.  He added, “we will implement the programme so that we can ensure favorable financing conditions and that means we are taking market conditions, market developments into implementation.”

He also said ECB will monitor FX “very closely”, and will take market conditions into implementation”. Though, he reiterated that exchange rate is not a policy target.

SECO downgrades 2021 Swiss GDP growth for coronavirus second wave

State Secretariat for Economic Affairs SECO downgrade 2021 growth forecast as “the second wave of the coronavirus will have an adverse effect on the Swiss economy”. Also, “rising case numbers and the measures to combat the coronavirus will slow international economic development considerably in the winter half-year of 2020/2021, especially in Europe. ” Though, “less dramatic containment measures have been taken than last spring and the overall economic impact is likely to be less severe.”

For 2020 as a whole, GDP is projected to contract -3.3%, worst since 1975. 2021 GDP growth forecast was revised down from -3.8% to 3.0%. The Swiss economy should return to pre-crisis levels towards the end of 2021. For 2022, GDP is projected to grow 3.1%.

Swiss PPI came in at -0.1% mom, -2.7% yoy.

UK Johnson: No deal Brexit remained the most likely outcome

UK Prime Minister Boris Johnson spokesman told reporters today, “the prime minister made clear that not being able to reach an agreement and ending the transition period on Australia-style terms remained the most likely outcome but committed to continuing to negotiate on the remaining areas of disagreement.”

On the other hand, Germany’s ambassador to EU Michael Clauss said, the negotiations are “not over yet” and “there are still a few days ahead of us”. “There is still a chance for