Good morning,

Capital focus

Leading the risk barometer today is the news that President Trump will recognize Jerusalem as the capital of Israel in a speech today. The move is a break with decades of US policy and risks fueling further violence in the region. Oil prices are trading lower despite the announcement and a lowering of crude inventories. USD is on the front foot however, looking to drive EURUSD into the high 1.17s through the US session.

There are few catalysts for today’s markets, and given that the tax reform bill negotiations look like a Hieronymus Bosch painting at the moment we should be seeing more volatility than we currently are. Markets will be markets.

Irish border disagreement

Doubt around Theresa May’s ability to strike a deal on the future of the Irish border saw the pound fall on Tuesday morning. The dilemma is that there needs to be a border somewhere. Dublin doesn’t want a border on the island, the Democratic Unionist Party doesn’t want a border with the rest of the UK however we are choosing to leave the single market and custom union so there needs to be some division somewhere.

May will be back in Brussels by the weekend to end the standoff but a deal by the end of the week has as much chance as a man with a wooden leg in a forest fire.

Weakness in Australia

The RBA’s overnight statement on Tuesday morning was more upbeat than expected. Despite several poor months of currency performance, and the cash rates being left at 1.5%, the overall positive commentary triggered bets for a March 2019 rate hike.

We now look for signals that there has been a successful turn in the employment sector which will compliment rising inflation and drive interest rates higher. Also worth noting that Chinese PMI for November beat expectation, which helped to push the dollar along.

Overnight, Aussie GDP has missed expectations and AUD collapsed. AUDUSD is down 0.25% so far this morning.

Have a great day.