Article Highlights

  • NZ food price index down by 0.8% vs. 0.1% decrease in November
  • Japan’s core machinery orders drops by 5.1% vs. 1.3% decline expected, 4.1% gain in October
  • Japan’s PPI (y/y) slips by 1.2% vs. 1.4% downtick expected, 2.2% slip in November
  • AU MI inflation gauge up by 0.5% vs. 0.1% previous
  • U.K. RIghtmove house price index up by 0.4% vs. 2.1% decline in December
  • Japan’s tertiary industry activity up by 0.2% as expected and previous
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The pound started the week on the wrong side of the charts, as it gapped lower across the board following speculations that the U.K. is in for a “hard” Brexit.

Major Events:

GBP gapped lower over the weekend – The biggest story of the hour is the prospect of U.K.’s Theresa May possibly going all in in favor of a “hard Brexit.”

Over the weekend the Sunday Times reported that May will announce a “clean and hard Brexit” where the government would pull the U.K. from the EU’s single market and the European customs in exchange for more control over immigration laws and leaving the European Court of Justice.

While the newspaper hasn’t cited its sources, its headlines, picked up by a few other news outlets, was enough to spook Asian session investors into selling the pound like it’s a hot potato. If you recall, May is set to give a speech in London tomorrow, where she is expected to talk more about her government’s plans on dealing with the EU divorce.

Market players are now expecting her to support her “Brexit means Brexit” statement by assuring investors that getting out of the EU’s single market isn’t such a bad thing. More specifically, she’ll likely talk about pursuing new trade deals with other countries and possibly getting out of the jurisdiction of the European Court of Justice.

Overall risk aversion – Thanks to the prospect of a “hard” Brexit, Japan’s less-stellar-than-expected data releases, and apprehensions over Trump’s inauguration scheduled this weekend, risk aversion reigned supreme during the Asian session.

Nikkei, which took hits from a flight to the safe-haven yen, is down by 0.90% while Hang Seng is also down by 0.92% and the Shanghai index is down by 0.68%. Australia’s A SX 200 (+0.47%) bucked the trend though, thanks to higher gold prices and a positive MI inflation gauge reading.

Major Market Movers:

GBP – The pound gapped lower at the start of the week and has yet to close its gaps even after the Asian session players have done their best.

GBP/USD gapped down from 1.2188 to 1.2001 and is trading at 1.2027 while GBP/JPY fell from 139.51 to 137.25 and is now even lower at 137.17. Ditto for EUR/GBP, which shot up from .8733 to .8841 before trading at .8829.

JPY – The low-yielding yen was one of the biggest winners for the past couple of hours, as forex players flocked to the safe haven.

USD/JPY slipped by 21 pips (-0.18%) to 114.15, EUR/JPY is down by 14 pips (-0.12%) to 121.12, and AUD/JPY is 23 pips (-0.27%) to 85.34.

Watch Out For:

  • Japan’s preliminary machine tool orders (y/y)
  • 11:00 am GMT: Euro Zone trade balance (23.2B EUR expected, 19.7B EUR previous)

See also:

Last Week’s Top Forex Movers

Bonnie and Clyde, peanut butter and jelly, Kanye West and Kanye West. Some things just go well together.

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