The Week Ahead: The Brexit Rewind

Trade of the Week

GBPUSD softens as trade uncertainty looms

Post-Brexit euphoria might have come to an end as investors shifted their focus to EU-UK trade negotiations. The reality is that each side has a different vision of the shape and the substance of their future partnership, particularly in areas of immigration and the Irish border. Markets are likely to be jittered as uncertainty remains. Tuesday’s GDP figure would offer a gauge on the impact of the Brexit on the British economy. Disappointing data could further depress cable. As the pair sinks below the rising trend line, the tide might have turned. 1.2850 would be the next support to look for.

EURJPY struggles to recover

The single currency slipped against other majors amidst worries that the bloc’s economy is far from turning around. Weak German industrial output came in sharp contrast with European Central Bank President Christine Lagarde’s reassurance of recovery. This Friday’s GDP data across the Eurozone may clarify whether the economy has indeed been stabilising. The breakout below 120.20 has dented the bullish sentiment. If the pair fails to rally above 121.00 near the moving averages, 119.40 could be the next target.

NZDCAD remains under pressure

Is the New Zealand dollar’s latest weakness a tactical retreat ahead of the RBNZ’s interest rate decision on Wednesday? December’s better-than-expected CPI, which rose to 1.9% may favour a less dovish outlook from the central bank. This could help the kiwi recoup some losses. However, as China is New Zealand’s major trading partner, disruptions from the virus could weigh on medium-term activity and cap the currency’s rebound. Sentiment has turned to the downside after the pair broke below the psychological level of 0.8600. Another break below 0.8500 may trigger an extended sell-off.

WTI crude plunges as demand falls

Weak oil demand from China amid the coronavirus outbreak continues to weigh on the commodity’s prices. Large scale quarantine and travel restriction in China and across Asia to some extent have shed global consumption. Disruptions to China’s economic activity could last for the first part of the year, which means we have yet to see an end to the oil demand shock. After a drop below the major support of 50, the bearish mood has prevailed. The price may pull back towards the 52-53 area before new sellers join in.