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The Aussie and the Kiwi outperformed their peers and were the best-performing currencies of the session, likely because of the risk-on vibes.

The pound, meanwhile, got slapped broadly lower when Brexit-related rumors began to make the rounds.

  • UBS Swiss consumption indicator: 1.69 vs. 1.73 previous
  • German retail sales m/m: -1.9% vs. -0.4% expected, 1.9% previous
  • French preliminary HICP m/m: -0.1% vs. -0.3% expected, 1.9% previous
  • Spanish flash HICP y/y: 0.5% vs. 0.9% expected, 1.1% previous
  • Euro Zone flash HICP y/y: 1.3% as expected vs. 1.4% previous
  • Euro Zone flash core HICP y/y: 1.0% as expected vs. 0.9% previous
  • Jobless rate in the Euro Zone: steady at 8.7% as expected
  • ADP report and Canada’s monthly GDP report coming up
  • FOMC statement later

Major Events/Reports

Brexit-related rumors

Earlier today, Reuters released a report that cited two unnamed British finance executives who were in a meeting with European Commission officials.

And according to this report, these British finance executives proposed a deal with their E.U. counterparts that “would allow cross border trade in financial services on the condition that each side preserve regulatory standards in line with the best international standards.”

In other words, the U.K. wants the City of London to have little to no barriers when it comes to access to the E.U. market and the U.K. is offering a similar level of access to the E.U.

This plan supposedly had the blessing of British Brexit Secretary David Davis, according to these unnamed sources.

However, the E.U. rejected the proposal and “made it very clear … that this is unacceptable to them.”

This is obviously bad news for the financial center in the City of London and for the U.K. economy as a whole.

Euro Zone HICP

The flash estimate for the Euro Zone’s January HICP came in at 1.3% year-on-year.

This is within expectations, but is slower compared to December’s +1.4% and marks the second consecutive month of ever weaker annual HICP readings to boot.

More importantly, this is a bad start for 2018 since the ECB is forecasting that headline HICP will increase annually by 1.4% in 2018, as detailed in the December 2017 Eurosystem staff macroeconomic projections

Moreover, HICP less energy, one of the ECB’s preferred measures for core inflation, held steady at 1.2% year-on-year for the fourth consecutive month.

This is also a poor start for 2018 since the ECB’s forecast is +1.3% for 2018.

On a more upbeat note, HICP less energy and unprocessed food, another of the ECB’s preferred measures for core inflation, accelerated to +1.2% year-on-year after holding steady at 1.1% for three consecutive months.

This is currently beating the ECB’s +1.2% for the year.

Modest risk-taking in Europe

The major European equity indices had a wobbly start but were mostly in the green by the end of the morning London session, which implied that there was some modest risk-taking during the session.

Market analysts blamed the early wobble on mixed earnings reports for the big European companies.

As for the later signs of risk-taking, market analysts say they were due to risk sentiment spillover from the earlier sessions, largely because Trump’s speech didn’t have any negative effect on the markets.

  • The pan-European FTSEurofirst 300 was up by 0.02% to 1,558.11
  • Germany’s DAX was up by 0.19% to 13,222.50
  • The blue-chip Euro Stoxx 50 was up by 0.04% to 3,612.50

U.S. equity futures actually outperformed the European equities market, hinting that the risk-on vibes may carry over into the U.S. session. Although that may change, depending on the Fed has to say during the FOMC statement.

  • S&P 500 futures were down by 0.25% to 2,831.50
  • Nasdaq futures were down by 0.24% to 6,958.00

Major Market Mover(s):

AUD & NZD

The Aussie and the Kiwi outperformed their peers and vied for the top spot during the morning London session, likely because both higher-yielding currencies got a boost from the risk-on vibes in Europe.

In the end, there can only be one champ, however. And that happened to be the Kiwi. Although the Kiwi only barely won out against the Aussie since AUD/NZD was only down by 3 pips (-0.03%) to 1.0941.

NZD/USD was up by 21 pips (+0.28%) to 0.7413, NZD/JPY was up by 37 pips (+0.46%) to 80.70, NZD/CHF was up by 27 pips (+0.39%) to 0.6915

AUD/USD was up by 21 pips (+0.26%) to 0.8112, AUD/JPY was up by 37 pips (+0.42%) to 88.30, AUD/CHF was up by 27 pips (+0.36%) to 0.7565

GBP

The pound was already feeling some bearish pressure when the morning London session rolled around. However, it really felt the pain after Reuters released the Brexit-related report that I discussed earlier.

GBP/USD was down by 22 pips (-0.15%) to 1.4165, GBP/NZD was down by 77 pips (-0.40%) to 1.9114, GBP/AUD was down by 64 pips (-0.37%) to 1.7469

Watch Out For:

  • 1:15 pm GMT: ADP’s U.S. private non-farm employment change (186K expected, 250K previous)
  • 1:30 pm GMT: Canada’s monthly GDP (0.4% expected, 0.0% previous)
  • 1:30 pm GMT: U.S. employment cost index (0.6% expected, 0.7% previous)
  • 1:30 pm GMT: Cananad’s RMPI (-2.2% expected, 5.5% previous) and IPPI (-0.2% expected, 1.4% previous)
  • 2:45 pm GMT: Chicago PMI (64.2 expected, 67.6 previous)
  • 3:00 pm GMT: U.S. pending home sales (0.5% expected, 0.2% previous)
  • 3:30 pm GMT: U.S. crude oil inventories (0.1M expected, -1.1M previous)
  • 7:00 pm GMT: FOMC statement (no expected change in the target range for the Fed Funds rate)