Pound lifted on Brexit hopes

GBP/USD at 2-1/2 month high

The pound rallied across the board in early Asian trading after the UK newspaper The Sun reported that Ireland’s DUP was prepared to back Theresa May’s Brexit Plan B, although with some additional conditions attached on the Irish border backstop, which would also need Brussels’ approval. The deal faces a debate and vote in Parliament on January 29.

GBP/USD climbed to its highest level since November 8, and looks poised to close above the 200-DMA for the first time since May 14 last year.  The pair is now at 1.3122 and the next resistance point could be the 38.2% Fibonacci retracement of the April-January drop at 1.31917.

GBP/USD Daily Chart

Source: OANDA fxTrade

No let up for the Aussie

The Australian dollar continues its downward trajectory with AUD/USD looking poised for its second weekly loss in a row.  The FX pair slid to a three-week low of 0.7076 in Asia, with no new drivers adding to the pressure, merely a continuation of the negative bias that kicked off yesterday after NAB raised its variable mortgage rates. AUD/USD found some comfort from a slightly weaker US dollar, lifting the pair off intra-day lows to 0.7108, though trading activity was muted. The Dollar Index, which measures the greenback’s value against six major currencies, hit the highest since January 3 yesterday.

Most equity index CFDs were in the black and the yen was a tad weaker on safe haven outflows as risk appetite improved. USD/JPY edged higher to 109.74.

NOTE: $500 million worth of USD/JPY options expire today at strike 110.00, according to DTCC data

Government shutdown to continue

The Senate blocked two rival proposals to reopen the US government yesterday and so the shutdown continues into its 35^th day, the longest shutdown in modern US history. Earlier this morning, the US financial press was reporting that Democrats would still not support any kind of border wall funding, so it would appear the saga has no end in sight.

Risk aversion sentiment grows as shutdown continues and optimism fades on trade front

Meanwhile, a CNN report circulated overnight that President Trump was speaking with legislative and legal teams overnight, supposedly to prepare a draft proclamation of national emergency on the border wall issue.

German sentiment to extend weaker trend

Today’s release of the German IFO surveys for January are expected to show weakness for the fifth month running. The expectations index is seen edging down to 97.0 from 97.0 while the current assessment index is seen drifting lower to 104.2.

In other data, we see the UK’s CBI distributive trades survey, which could rebound from last month’s negative print. The US budget statement for December is expected to show a dramatic reduction in the deficit, most likely due to the government shutdown.

The full MarketPulse data calendar is available for viewing at https://www.marketpulse.com/economic-events/

Have a great weekend!

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