Fundamental Comment

Brexit deal vote, ECB meeting under the microscope

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Investors will focus this week on the British Parliament's vote on Prime Minister Theresa May's Brexit plan and the European Central Bank's monetary policy meeting, as well as some important data from major economies.

Pound Sterling

The British pound continued its decline last week amid uncertainty over whether May could persuade the Parliament to vote in favor of the recent Brexit agreement, which was approved by the European Union.

The latest forecast suggests that Parliament may reject May’s plan, which will complicate matters and further cloud the future status of Britain's EU relationship. Hence, this will keep the pound under negative pressure.

In case the Parliament voted for the Brexit proposal, which needs a simple majority, it is widely expected that the sterling would rise and start rebounding.

However, some reports have pointed the U.K. government may cancel Tuesday's Parliamentary vote on the Brexit withdrawal deal. 

For the economic reports due from Britain this week, the most important will be unemployment, industrial production and goods trade balance.

US Dollar

The dollar continued to play the role of safe haven currency last week, ahead of Federal Reserve Chairman Jerome Powell’s testimony and the release of important economic reports from the U.S. this week.

Fed Chairman Powell is due to testify on the economic outlook before the Economic Committee of Congress in Washington DC after being postponed last week.

Powell’s comments may affect the dollar's movements, especially after the latest remarks from Powell have signaled the Fed’s interest rate was near neutral levels.

On the economic front, after a 0.6 percent rise in October, the US producer price index may show a 0.1 percent increase in November, while it may fall from 2.9 percent year-on-year to 2.5 percent, according to analysts' expectations.

U.S. consumer price index may show a 0.1 percent rise in November and stabilize at an annual 2.5 percent.

US retail sales data, which measure the strength of consumer spending, may signal a 0.4% surge in November after a 0.8% rise in October.

Euro

The euro got some relief from the dollar’s retreat last week, yet the slowing economic growth in the eurozone and the Italian budget concerns could put the single currency under selling pressure once again.

Perhaps the most notable event this week is the ECB's monetary policy meeting, as policymakers will decide interest rates and may announce the end of the asset-purchases program.

If the central bank announced the end its asset-purchases program by the end of December, it should give a positive boost to the euro, but market watchers will also focus on eurozone growth and inflation projections.

The most important data for the week will be the Composite PMI for December, which includes the manufacturing and services sectors.

Analysts are in favor of seeing a slight slowdown in euro area private sector’s growth pace to 52.5 from 52.7 in November.

Commodities

Last week, gold rose strongly after sharp sell-off in global equities and a retreat in the greenback.

But gold needs to hold above $1240 an ounce to complete its robust rebound, while it may still find support near $1220 an ounce.

The precious metal could get its direction this week from the movements in global stock markets as well as the dollar, taking in mind that the Parliamentary vote on the Brexit plan can have a significant impact on the general sentiment.

As for oil, it rebounded after OPEC and its allies agreed to cut production by 1.2 million barrels a day, but prices remained to hover near record lows.

Eyes will focus this week on the U.S. crude build for last week, where the EIA government report may show crude stockpiles may have edged up by 2 million barrels in the week through Dec. 7 after a significant drop of 7.32 million barrels a week earlier.

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