Good morning,

EUR: Long-awaited ECB meeting

Whilst the ECB’s current rate policy remains on hold, there will be a renewed focus on GDP and inflation projections. Both are currently expected to be revised to the downside with plenty of investment banks and analysts writing up their pre-ECB notes with a red pen highlighting the current “Eurozone downside risks”. I feel the policymakers have probably missed the boat – or perhaps the cycle – to stabilise their policies during the next six to twelve months.

Bloomberg reported yesterday that ECB staff were working on a new liquidity operation. Markets are therefore looking for confirmation of the ECB’s new long term loans, which should be issued out / offered to the market during the middle of this year.

There is still very little appetite for any change in rates towards the end of 2019, with 2020 remaining the default expectation across the board. Despite initial forecasting to the downside, the ECB remains upbeat about a recovery towards the end of this calendar year. I would expect the meeting to cause some fairly sizeable swings in Euro pairs as traders run the sentiment on this heavily anticipated meeting.

USD: Regulations revisited

One of the relics left behind by the Obama administration was derived from the previous financial crash and ensured safe and best practices were legally enforced upon major financial groups. Last night, Trump relaxed some of these regulations which, as is customary with this President, quickly divided opinion. He is being accused of now watering down the framework which is in place to protect both the bankers and their clients.

Overall market bullishness in the US is slowing and becoming replaced by gloom, as investors project that the expansion of the economy is grinding to a halt. The FT commented that the “auto-pilot” investor community will assume any slowdown will prompt a rescue mission from The Fed. We will sit patiently and wait for tomorrow’s Non-Farm reading at 13:30 GMT.

GBP: Talks breakdown

Theresa May and her negotiating team have hit another deadlock ahead of the crucial showdown in the Commons next week. The Irish backstop remains the pinch point, with Barnier and Geoffrey Cox having a “robust exchange views” – political code for a good old shouting match.

EU ambassadors were informed last night that the two sides remain “so far apart” that further meetings are a questionable use of time. Theresa May and Juncker’s weekend meeting has therefore been put on ice.

Essentially what the UK is asking for (independent review of the backstop) goes far beyond the reach of Barnier. The vote on Tuesday will be going ahead regardless of the current standoff. GBP pairs remain trading sideways.

Have a great day.