HotForex Forex News

16:54 USD/CAD struggling to extend recovery decisively beyond 1.3150 level

The USD/CAD pair continued with its struggle for a follow through action, albeit has managed to hold in positive territory for the day.

Currently hovering around mid-1.3100s, stalling US Dollar recovery witnessed on Monday failed to assist the pair to build on to its tepid recovery bounce. Meanwhile, a mildly weaker sentiment surrounding oil market, despite of a minor recovery from session low, was seen weighing on the commodity-linked currency - Loonie, and has helped the pair to snap three days of losing streak. 

With the US markets closed in observance of Martin Luther King Day, investors seemed to readjust their positions ahead of this week's important US macro data, BOC monetary policy decision and President-elect Donald Trump's inauguration, which would determine the pair's next leg of directional move.

Technical levels to watch

On a sustained move above 1.3165 immediate resistance, the pair seem all set to head towards reclaiming 1.3200 handle before aiming to test its next resistance near 1.3245-50 region. On the downside, weakness back below 1.3125-20 region is likely to accelerate the slide towards the very important 200-day SMA support near 1.3100-1.3095 region below which the pair would turn vulnerable to drift back towards retesting last week's multi-month lows support near 1.3030 region.

 


16:25 GBP/USD near-term outlook remains negative Scotiabank

Shaun Osborne, Chief FX Strategist at Scotiabank, noted Cable’s outlook stays on the bearish camp for the time being.

Key Quotes

“Cable fell below 1.20 in early Asian trade as the UK Sunday press focused on PM May’s Tuesday Brexit speech, predicting that the speech will signal plans for a “hard” Brexit in return for regaining control of borders. Sterling volatility has surged back towards levels prevailing around the Brexit vote itself, with o/n vol touching 30% earlier. Sterling might take some comfort from President-elect Trump’s suggestion that he would work towards a quick bilateral trade deal with the UK but we expect the near-term trend to remain bumpy”.

GBPUSD might have just about done enough to steady intraday, with 1-hour and 6-hour charts suggesting a clear and firm reversal from the overnight low just under 1.20”.

“It should be a quiet session in North America, which may help steady the market. Broader risks are still tilted lower though. The longer-term bear trend remains intact and the GBP needs to regain 1.2150 to steady and extend through 1.2275 or so to really show signs of potential to strengthen”.

 

 


16:25 IMF leaves 2017 global growth outlook unchanged; foresee slightly faster growth in 2018

The International Monetary Fund (IMF), revealing an update to its economic forecasts, left global economic growth estimate for 2016 at 3.1%, in-line with the October 2016 forecast. 

In some of the notable changes for 2017, the Washington-based fund upgraded its growth outlook for the US (2.3% vs. 2.2%), UK (1.5% vs. 1.1%) and Euro-zone (1.6% vs. 1.5%).

The global growth for 2017 was left unchanged at 3.4%, while for 2018, the agency foresees global growth picking up to 3.6%.


16:03 USD/RUB retreats from highs, around $59.60

The Russian currency is trading on a firm fashion vs. its American peer on Monday, taking USD/RUB slightly lower in the 59.60 area.

USD/RUB lower, USD loses momentum

After climbing as high as the 59.70 region in early trade, the pair has now receded a tad as the greenback is also surrendering part of the initial gains while crude oil prices are attempting a bounce.

The barrel of Brent crude is losing smalls around $55.40, trading in a narrow range with the downside limited around $55.20 for the time being.

Data wise in Russia, November’s trade surplus bettered estimates at RUB 9.14 billion vs. RUB 7.6 billion expected and up from October’s RUB 6.6 billion surplus.

In the meantime, trade conditions remain thin today as US markets remain closed in remembrance of MLK holiday.

Looking ahead, geopolitical effervescence, crude oil dynamics and US-Russia scenario under Trunmp’s administration appear to be the main drivers for RUB in the next months.

In the meantime, RUB also appears well underpinned by speculative positioning, showing net longs have climbed to 4-week peaks during the week ended on January 10.

USD/RUB levels to watch

At the moment the pair is losing 0.02% at 59.67 facing the immediate support at 59.11 (low Jan.6) followed by 58.57 (low Jul.29 2015) and then 56.20 (low Jul.10 2015). On the upside, a surpass of 60.46 (20-day sma) would open the door to 60.66 (high Jan.11) and finally 61.63 (high Dec.20).


16:01 Gold conquers 1200 handle, markets hedge Hard-Brexit risk

Currently, Gold spot is trading at 1203.09, up +0.48% on the day, having posted a daily high at 1208.72 and low at 1196.86.

Risk-off accelerates over the weekend

Bloomberg reports, "The pound fell, equities slid and gold climbed on concern U.K. Prime Minister Theresa May is prepared to lead Britain out of the European Union’s single market and as the U.S. President-elect suggested other countries could break from the bloc."

Gold: Targets Further Upside Pressure On Price Extension

The report continues, "Caution dominated markets amid tough talk from May and Donald Trump about Europe’s economic and political institutions. British government officials trying to limit damage to the pound will speak to major banks in London before the U.K. leader sets out her vision for leaving the bloc in a speech on Tuesday, according to people familiar with the situation. Meanwhile, Trump predicted that Britain’s exit will be a success that will encourage others to do the same. He also branded NATO obsolete."

Valeria Bednarik, Chief Analyst at FXStreet, noted on the current risk environment pushing Gold prices higher, "As news released over the weekend, suggest Tuesday's Theresa May speech will be lean towards a "hard-Brexit." .The logic behind the speculative headlines says that the UK should leave to EU Single Market to secure free-trade deals with other countries across the world, and regain full control of the kingdom's borders. Although, it's mere speculation, it was enough to take the Pound sharply lower at the opening."

Gold Levels to consider

There is technical evidence to support the ongoing bullish momentum fueled via palpable risk events. Currently, price behavior has been in a good mood since Dec. 2016 last days. The short-term bullish ascendant channel keeps gold bugs adding long positions on every $15.00 pullback; how far can things get from here? It all depends, on the risk appetite and the commodity demand to hedge risk and currency exposure if that's the case more sterling losses may boost higher Gold prices. Nevertheless, Stochastic (5,3,3), which moves in the overbought territory indicates a slowdown and a pullback towards 1190.50/1180.30 range is not out of the table. 

gold

In terms of technical levels, upside relevant barriers are lined up at 1242.70 (100-SMA), and 1268.20 (200-SMA). While supports are aligned at 1185.80 (50-SMA), and below that at 1162.90 level (previous support Dec. 2016, later resistance, then support).

gold

Ichimoku Cloud Analysis: Gold


15:58 GBP/USD struggling to extend recovery bounce, stuck near 1.2050 level

The GBP/USD pair failed to build on early European session recovery move to 1.2085 region and retreated back mid-1.2000s, albeit remained around 60-pips off an initial slump closer to Oct. flash crash lows.

Comments from the UK PM Theresa May spokeswoman, terming the talks of a hard Brexit as "speculation", eased market worries and provide some immediate respite for the major. However, speculations that Ms. May could emphasis on curbing free movement of people, at her much anticipated speech on Tuesday, has been fueling concerns of losing access to the European Union's single market and weighing on the British Pound. 

Meanwhile, a solid greenback recovery, as depicted by the key US Dollar Index, also contributed towards restricting the pair's recovery move. Moreover, investors also seemed reluctant to carry / initiate fresh positions ahead of this week's key event risks, including the President-elect Donald Trump's inauguration on Jan. 20.

In absence of any major market moving releases and a holiday in the US market, the pair is likely to extend its consolidative price action. However, BOE Governor Mark Carney's speech might provide short-term impetus for traders later during NY session.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet notes, "From a technical point of view, the 4 hours chart shows that the price remains far below a bearish 20 SMA, in the 1.2160 region, whilst technical indicators are holding near oversold readings, trying to correct higher, but with quite limited upward strength. Additionally, selling on spikes continues to be an interest trade, in spite of the gap."

She further writes, "The pair needs to recover above 1.2120 to advance up to the 1.2160 region, where strong selling interest will likely resurge and prevent it from advancing further. The immediate support comes at 1.2045, with a break below it indicating a slide towards 1.2000 first, and further, towards the mentioned daily low of 1.1986."

 


15:29 Europe: Monetary policy may have muted impact on markets BNPP

Gajan Mahadevan, Quantitative Strategist at Lloyds Bank, do not expect any changes to interest rate policy from either the Bank of England (BoE) or European Central Bank (ECB).

Key Quotes

“Interestingly, the risks around the next rate move are now skewed to the upside, particularly if economic data in the UK and Europe remain firm and inflation continues on its upward path.”

“Following recent announcements, we expect both the BoE and ECB to leave interest rate policy unchanged over the next twelve months. Last November, the BoE moved to a ‘neutral stance’, following the UK economy’s impressive post-Brexit performance. Survey data for Q4 2016 have also been robust, with the composite PMI in December – across the manufacturing, construction and services sectors – at its strongest since July 2015. In addition, November’s industrial production rose strongly and the UK consumer continues to show resilience. However, in spite of the data, the BoE’s Chief Economist, Andrew Haldane, believes that the fundamental view adopted by the MPC – a drop in the rate of GDP growth driven by post-referendum uncertainty and the squeeze on consumer purchasing power – will play out, and it is now a question of timing. That being said, with inflation on a clear upward trajectory, should the data remain firm, there is a risk that the BoE may talk up the prospects of future policy tightening.”

“Last month, the ECB extended its quantitative easing programme to December-2017, although it announced a reduction in the pace of monthly purchases from €80bn to €60bn. In addition, it increased the universe of eligible bonds by enabling the purchase of assets yielding lower than the deposit rate (-0.40%). We do not anticipate the ECB altering from this course. However, with the Euro area economy also holding up well in the face of elevated political uncertainty, and upside risks to European inflation, future policy actions are also skewed asymmetrically towards earlier tightening.”


15:17 EUR/JPY drops to the lowest level since early Dec.

The EUR/JPY cross ran through fresh offers near session high level of 121.67 and has dropped to the lowest level since early December.

Renewed worries of 'hard Brexit' trigger a fresh wave of risk-aversion trade on Monday. This coupled with weak trading sentiment in European equity market boosted the Japanese Yen's safe-haven appeal and contributed to the pair's offered tone. 

Meanwhile, some renewed selling pressure around the EUR/USD major, as investors turn cautious ahead of this week's ECB monetary policy decision, was also seen collaborating to the pair's offered tone on Monday. 

Looking at the broader picture, the cross has broken out of nearly one-month old trading range and has also decisively broken below 23.6% Fibonacci retracement level of 112.08-123.41 up-swing, confirming a break-down. Hence, from current levels the cross seems vulnerable to extend its corrective slide in the near-term.

Technical levels to watch

A follow through selling pressure is likely to drag the cross towards 120.00 psychological mark, below which the cross is likely to drift towards an important confluence support near 118.00 handle, comprising of 200-day SMA and 50% Fibonacci retracement level. 

On the flip side, 23.6% Fibonacci retracement level near 121.25-30 region now becomes immediate resistance, which if cleared has the potential to lift the cross beyond 122.00 handle, towards its next major hurdle near 122.65-70 region.

 


15:01 Poland Net Inflation climbed from previous -0.1% to 0% in December


15:00 EUR/USD sidelined below 1.0600, risk-off prevails

The better tone surrounding the buck on Monday has relegated EUR/USD to trade in the lower bound of the range near 1.0580.

EUR/USD weaker on USD momentum

The broad-based risk aversion theme has given extra legs to the buck at the beginning of the week, prompting the US Dollar Index (DXY) to revert part of the recent pullback and recover the 102.00 handle and above.

Spot has thus retreated to fresh lows in sub-1.0600 levels although sellers remain so far unable to break below the 1.0580 area, which seems to be holding quite well.

The current consolidative pattern is expected to extend into the European evening amidst the absence of relevant releases in Euroland and the inactivity in the US markets due to the MLT holiday.

On the positioning side, EUR net shorts have been trimmed to levels last seen in late June during the week ended on January 10 according to the latest CFTC report, somewhat lending support to the recent upside seen in spot.

EUR/USD levels to watch

The pair is now losing 0.49% at 1.0592 and a breakdown of 1.0518 (20-day sma) would target 1.0508 (low Jan.9) en route to 1.0452 (low Jan.11). On the flip side, the initial hurdle aligns at 1.0687 (high Jan.12) ahead of 1.0798 (high Dec.5) and the 1.0873 (high Dec.8).

 

 


14:59 US: Undershooting unemployment & wage growth - SocGen

Omair Sharif, Research Analyst at Societe Generale, suggests that although news headlines about the recent FOMC Minutes focused on the Fed’s thinking regarding the impact of fiscal policy, a bigger takeaway for SocGen was the Committee’s concern of the rising risk of a significant undershooting of the long-run unemployment rate.

Key Quotes

“Indeed, many on the Committee noted that they may need to hike faster in order to stem the potential inflationary impact. In our view, that means wage growth will be Committee’s overriding domestic focus in 2017. We suspect that is part of the reason that the jump in December average hourly earnings garnered so much attention. While the rise was certainly encouraging, we would temper the enthusiasm about the December earnings gain being a signal of the long-awaited run-up in wages.”


14:36 USD/CHF stick to recovery gains beyond 1.0100 handle

The USD/CHF pair staged a goodish recovery on Monday and has now reversed its previous session losses to one-month low.

Currently trading around 1.0120 region, 15-pips off session peak level of 1.0136, a broad based US Dollar recovery from three week lows has been the key factor driving the pair's recovery from the lowest level since Dec. 8, touched on Friday.

Meanwhile, the prevalent weak sentiment around European equity market is underpinning the Swiss Franc's safe-haven appeal and restricting further upside for the major. Moreover, traders might refrain from initiating fresh long positions amid prevailing uncertainty over the incoming Trump administration's fiscal policies and might collaborate towards limiting the pair's recovery move. 

Investors this week will remain focused on the US President-elect Donald Trump's inauguration speech on Friday, which would help them determine the pair's next leg of directional move. 

Technical levels to watch

On a sustained move above 1.0135-40 immediate resistance, the pair seems to head towards 1.0170 horizontal resistance ahead of 1.0200 round figure mark. On the downside, 1.0100-1.0090 area now becomes immediate support to defend, which if broken is likely to accelerate the slide back towards one-month lows support near 1.0045 region, touched last week.

 


14:21 WTI challenging lows near $52.20

Crude oil prices are slightly in the red at the beginning of the week, with the West Texas Intermediate around the $52.20 area per barrel.

WTI weaker on USD buying, Saudi officials

Prices for the WTI are retreating for the second consecutive session so far today, testing lows near the key $52.00 mark following a string rebound in the demand for the greenback.

Risk-off sentiment has picked up extra pace today in response to heightened risks on the likeliness of a Brexit scenario, all in light of the speech by UK’s PM Theresa May on Tuesday.

Somewhat alleviating upside pressure, Saudi Energy Minister said the current deal to limit the oil output is unlikely to extend beyond six months.

On another direction, WTI speculative net longs have decreased to 4-week lows during the week ended on January 10, as per the latest CFTC report.

WTI levels to consider

At the moment the barrel of WTI is losing 0.38% at $52.16 and a break below $50.71 (low Jan.10) would expose $49.95 (low Dec.15) and then $49.88 (55-day sma). On the other hand, the next hurdle lines up at $52.97 (20-day sma) followed by $54.32 (high Jan.6) followed by $53.50 (high Jan.12) and finally $54.32 (high Jan.6).


14:19 GBP/EUR: Politics primed to dominate 2017 Lloyds Bank

Gajan Mahadevan, Quantitative Strategist at Lloyds Bank, notes that since the middle of last November, GBP/EUR has been in a range, between 1.14 and 1.20.

Key Quotes

“The recent European Central Bank decision to extend its quantitative easing programme (albeit reducing its pace of monthly asset purchases, from €80bn to €60bn) and increase the universe of eligible bond purchases by amending the qualifying criteria, caused GBP/EUR to briefly spike above 1.20. The rise, however, proved short-lived, as resurfacing concerns around a ‘hard’ Brexit have weighed on sterling.”

“Given that we expect interest rates in both regions to remain on hold this year, monetary policy developments are likely to have little bearing on the currency pair. In contrast, potential changes in the political landscape, which could be triggered by Dutch (March), French (April / May), German (likely September) and possibly Italian elections, have scope to drive significant volatility. Over the next twelve months, our central expectation is for GBP/EUR to appreciate towards recent range highs, reaching 1.21 by December-2017.”


14:12 CNH: Whats behind the recent big move? Danske Bank

Research Team at Danske Bank suggests that while transparency is low behind the recent CNH move at the start of the month and presents their take on the move below.

Key Quotes

‘China has been very concerned about rising outflows and feared an acceleration in January as many – including ourselves – have focused on the resetting on 1 January of the USD50,000 quota that all Chinese citizens can buy every year as long as the use of the money does not violate the capital control rules.”

“It seems that China has tried to act pre-emptively and put a stop to the depreciation of CNY versus USD, as this could risk fuelling more outflows – as was the case in January last year. China’s best weapon to stop depreciation is intervention in the offshore market and to tighten liquidity. This pushes up offshore money market rates and thus the cost of shorting CNH.”

“As many hedge funds and other investors have been short CNH going into 2017 on the expectation that outflows could pick up, we believe there has been a big short position in the market that has been squeezed by the rise in the cost of selling CNH. As these investors scramble to close positions, demand for CNH is moving up and is pushing money market rates up even more. It also pushes more investors to run for the door in the trade.”


13:56 US: Great uncertainty surrounding Trumps policies - BBH

Donald J Trump will become the 45th President of the United States on January 20 and there is great uncertainty surrounding the policies his administration will pursue, and its priorities according to the analysts at BBH.  

Key Quotes

“The only thing we can be confident of is there will be changes in both style and substance. It has already become clear in the confirmation process that many of new cabinet officials disagree with important elements Trump's campaign rhetoric, and disagree with each other.  Presidents have their own decision-making style, and it is not clear where power will truly lie.  Only infrequently is an org chart particularly helpful.”

Amid the uncertainty, there are a few important constants.  First, the economic team is very pro-growth.  The usual reasons for not pursuing policies that lead to stronger growth, as the effect on the trade deficit, the dollar, or inflation are not acceptable to many in the new economic team.  Second, Trump does not feel bound by American tradition, including resisting sphere of influence claims (including formally recognizing Russia's annexation of Crimea), opposing nuclear proliferation, defender of free-trade, and the acceptance that Taiwan is part of China (even while opposing a military solution).  Third, the communication style, including the extensive use of Twitter and citing names of specific companies and people, create new uncertainties for investors.”

“In situations like that, people often find ways to look like they are complying in hopes of deflecting negative attention while pursuing their own agenda.  Fourth, the style and policy substance is likely to lend itself to a heavy volume of misunderstanding, clarifications, and in one word, controversies, that make it all the more important that investors distinguish between noise and signal and focus on the latter.”  


13:52 US: Possibility of a fundamental structural change in trade policy - Nomura

Research Team at Nomura suggests that the Donald Trump’s victory in the US Presidential election has introduced the possibility of a fundamental structural change in US trade policy – the first in decades.

Key Quotes

“The consistency of Mr Trump’s protectionist ideas over the years suggests that this is the most likely policy to be implemented. While it does mark a departure from Republican Party orthodoxy, a longer historical perspective shows that protectionism was traditionally a Republican stance all the way back to the party’s founder, Abraham Lincoln.” 

“As for the specifics, President Trump has various options. One is to re-negotiate existing trade agreements and switch to bilateral negotiations. A more dramatic path would to be impose import tariffs directly or indirectly (border tax) on other countries. Then there is the possibility of introducing a weak dollar policy. With the dollar at its highest level in real terms in 15 years and a recent sharp worsening in the non-oil US trade balance, there could even be a valuation-based argument for instituting such a policy. The implementation of such a policy would probably not match the Plaza Accord. It could take the form of a tweet, actual FX intervention or even the creation of a sovereign wealth fund. Needless to say, Donald Trump’s position on trade policy should not be ignored.”


13:51 USD/CAD retreats from high despite of mildly weaker oil prices

The USD/CAD pair snapped three days of losing streak and staged a tepid recovery on Monday, albeit has retreated few pips from session peak. 

Currently trading around 1.3135 area, a broad based US Dollar recovery, from Friday's three-week low, helped the pair to defend the very important 200-day SMA, at least for the time being. Moreover, a mildly negative sentiment surrounding oil prices, with WTI crude oil correcting to $52.20 level, was seen weighing on the commodity-linked currency - Loonie, and collaborating with the pair's tepid recovery.

The recovery, however, lacked momentum amid lower-than-usual trading volumes in the Martin Luther King holiday in the US markets. Moreover, investors preferred to remain on the sidelines ahead of this week's key event risks - BOC monetary policy decision on Wednesday and President-elect Donald Trump’s inauguration on Jan. 20.

Technical levels to watch

A follow through retracement below 1.3115-10 immediate support now seems to find support near the very important 200-day SMA near 1.3095 region below which the pair is likely to head back towards testing last week's multi-month lows support near 1.3030 region.

On the upside, sustained move above session peak resistance near 1.3155-60 region is likely to accelerate the recovery move towards 1.3200 handle ahead of its next horizontal resistance near 1.3235-40 region.

 


13:51 UKs PM T.May to meet D.Trump in the US PMs Spokeswoman

PM Theresa May could hold her first meeting with president-elect Donald Trump in the US, according to May’s spokeswoman on Monday.

Furthermore, spokeswoman said that May stands ready to act in case the UK is forced to consider alternative economic models, sharing this view with Chancellor Hammond.

In addition, the government declined to comment on FX movements, said May’s spokeswoman.

In the meantime, GBP/USD remains entrenched in the negative territory, hovering over 1.2060/65 after bottoming out in the 1.1980 area in overnight trade.


13:48 ECB: Practically no chance to introduce new initiatives - BBH

According to the research team at BBH, after having adjustment policy last month, there seems to be practically no chance that the ECB introduces new initiatives.  

Key Quotes

“Draghi's presentation may be ho-hum. The eurozone economy has evolved in line with the ECB's expectations.  Investors will be most interested learning Draghi and the ECB's take on the stronger than expected rise in CPI.  Recall headline CPI jumped to 1.1% in the preliminary estimate in December from 0.6% in November. It is expected to be confirmed the day before the ECB meets. Draghi can be expected to resist ideas such as those suggested by German Finance Minister Schaeuble that it is time to reconsider the thrust of monetary policy.   If it were up to officials like Schaeuble, the policy would not have been implemented in the first place.”   

“The first inkling that policy is indeed working is not the time to pullback, Draghi may say.  In addition to cautioning against jumping to conclusions based on one month's data, he may note that the rise in headline measures is primarily the result of energy prices.  The core rate increased to 0.9% in the preliminary estimate for December.  The cyclical low was 0.6%.  Pressure is likely to mount until the updated staff forecasts in March.  Note that the base effect warns of additional gains in CPI. Last January's 1.4% decline (month-over-month) will drop out of the year-over-year comparison.  Despite the increase in price pressures, inflation expectations remain deflated.  The German 10-year breakeven is a little below 1.3%.” 


13:43 Brazil: Reigniting growth is key in 2017 - Nomura

Analysts at Nomura note that 2016’s improvements in economic policy and better political coordination provided Brazil with a significant market opportunity.

Key Quotes

“As most of that improvement has been already realised, 2017 is likely to be more challenging as there should be less positive surprises/further improvement on the agenda. While most of those economic/political milestones were helped by the start and ongoing approval of structural reforms and fiscal consolidation, the real test will be if this virtuous cycle turns into faster and sustainable growth.”

“In our view, significant further BRL strength could be derived from: a) faster progress on fiscal consolidation that leads to faster growth or b) from an eventual significant drop in political noise from the current administration. Currently, we believe neither outcome is immediately possible. Similar to Mexico, a 2018 Presidential transition could see slow moving agreements in the local political arena. Despite this, there are still a few positive factors that could support BRL including:

1) Brazil having a relatively low degree of trade openness in comparison with its other regional peers. This may help Brazil transit through a higher US rate environment.

2) Brazil is also not as exposed to the US as Mexico and it is not viewed as a “target” of negotiations for better “trade deals.” However, it is exposed to China (its main trading partner), and our Nomura chief China economist expects headline China GDP growth to remain stable at around 6.5-6.6% from Q1 to Q3 2017.

3) High carry has also helped BRL outperform other more “trade exposed” loweryielding regional currencies. Even as the easing cycle unfolds, Nomura economics still expects the Selic rate to end the year at 10% p.a. In addition, Brazil still has a low stock of government debt denominated in USD, at around 3% of total liabilities.”

“If the global backdrop allows, we believe BRL may still outperform its other regional peers because of relative fundamentals and still significantly high carry. Despite this, we see a slow pace of appreciation, as Banco Central do Brasil (BCB) still needs to dismantle its current FX swaps programme, where the central bank is exposed to BRL weakness from a monetary and fiscal perspective.”


13:40 UK: May s Brexit strategy in focus BBH

Research Team at BBH suggests that when May became UK Prime Minister there was a small window of opportunity to change the trajectory and she could have said she was not bound by Cameron's pledge to adhere to the results of the referendum.  

Key Quotes

‘May's government has not been bound by other policies of the previous Tory government. She could have said that the referendum was non-binding and why pretend otherwise.  It won with the slightest of majorities, which was not to make such an important decision as changing a treaty.  With Labour having inflicted on itself serious injury, she could have won an election if she lost a vote of confidence.  Instead, she went with the "Brexit is Brexit"  slogan that may still prove tantamount to cutting one's nose to spite one's face.”

A week ago, May confirmed that she was willing to sacrifice access to the single market in exchange for greater control over immigration and not being subject to the European Court of Justice. Sterling fell in response through the $1.22 area that had served as a base since October and fell to two-month lows against the euro.  She is expected to outline more of her approach in a speech on January 17.  A new wrinkle has emerged, and it may blunt or neutralize the negativity of the hard exit that May appears to be leading the UK.  The Northern Ireland government collapsed at the start of last week. If the UK Supreme Court grants, it is expected to do shortly, a role for the parliament that sits in Westminster, the Parliament in Northern Ireland has joined the suit.  Without a sitting parliament in Northern Ireland, May's intention on triggering Article 50 at the end of Q1 would likely be frustrated.” 


13:35 MXN: Difficult to spot value until the dust settles - Nomura

Analysts at Nomura note that the Mexican peso has taken a beating in the last few months and they still believe that it is not a buy because of significant uncertainties ahead.

Key Quotes

“Even looking at risk-reward adjusted measures, it is still very difficult to gauge either the expected return or volatility because of significant downside risks. In addition, a swift rally is unlikely in the short term as there is no clear or quick resolution on US trade policy.”

“While the premium already embedded in MXN may look attractive, trade policy with the US needs to be clearer before we can start looking for value. The next 100 days could still offer surprises that should quickly affect FX and rates. But this is only the straightforward, albeit adverse, part of the puzzle. Prior to the turn of the year, we had expected the bulk of the trade adjustment to be largely achieved through “trade restrictions” mostly on the Mexican side and how their exports would enter the US. A surprise step-up in rhetoric by Mr Trump via Twitter, targeting US corporations has provided new information on how his “better deals” could take shape. The market reaction suggests this is both unexpected and not priced in.”

“We think there could still be some unpleasant surprises as several industries other than the automotive sector or regulations affecting the mobility of capital or labour remittances have not been discussed yet, but could pose negative risks. Although we do not suggest this will be the ultimate case, we need to identify room for MXN downside if those negotiations materialise. NAFTA survival (partial or a renegotiated version), the elephant in the room, is still yet to be seen as Mr Trump needs to provide clarity on his attitude towards any changes to this trilateral agreement.”

“On the domestic front, recent MXN weakness and higher interest rates reveal additional vulnerabilities. Not only is growth expected to take a hit, but politics could come into play much sooner than expected for the 2018 presidential election. AMLO, the leader of the MORENA party, could be one of the main beneficiaries of the government’s declining popularity. Last but not least, foreign-domiciled accounts holding local securities (portfolio flows) have more than funded the current account deficit in the past few years. If adverse (local and external) conditions are prolonged, we see the risk of some position liquidation. If this hypothetical situation arises, further MXN weakness will likely emerge.”


13:32 NZD/USD overbought, could still test 0.7180 UOB

In opinion of FX Strategists at UOB Group, NZD/USD keeps its bullish stance and could attempt a visit to 0.7180 in the short term.

Key Quotes

“As noted last Friday, only a move below 0.7050 would indicate that a temporary top is in place. NZD touched a low of 0.7072 but rebounded quickly. The recovery appears to have scope to extend higher but the major 0.7180 resistance is likely out of reach for now”.

“We turned bullish NZD last Friday and there is no change to the view. The suggested buying level of 0.7060/70 was not met as NZD rebounded from a low of 0.7072. Shorter-term momentum has waned somewhat and another dip towards

0.7060/70 would not be surprising”.

 

 


13:32 China: President Xi goes to Davos - BBH

Research Team at BBH notes that this will be the first time a Chinese President attends Davos and it is part of an important and ironic juxtaposition that appears to be unfolding.  

Key Quotes

“It will be Chinese "core" leader that will defend globalization from the populism and protectionism that appears to be on the rise in the United States and Europe.  The shoe has been on the other foot for years.  Chinese nationalism was worrisome for many.  It was China's reluctance to free-trade rules embodied in the WTO agreements that was the cause of much trade friction.  Meanwhile, the price of stabilizing the economy has been a continued increase in credit extension.  At the same time, capital controls have been tightened stem the outflows.  The painful squeeze inflicted in the offshore yuan market continues to deter speculation as CNH is trading at its largest premium (rather than the more usual discount) for the longest period under this dual currency regime.”

We had argued that just like Bush and Obama backed off their campaign pledges to cite China as a currency manipulator when they assumed office.  Our forecast that Trump would also back off his pledge to cite China on day one was also bluster is coming to pass.  In an interview in the Wall Street Journal, the President-elect says it won't be day one.  He will talk to them first.  Revealing either his reluctance to take language seriously or a subtle slight to China, Trump referred to President Xi as chairman.  It would be like calling a US president Commander.  It is a title they have but not this purpose. Alternatively, it could be a jab that Xi is not elected.   More antagonistic to the Chinese, Trump said he is not committed to the US traditional one-China policy.  He claimed it was up for negotiations.”   


13:28 China: RMB depreciation trend still intact - Nomura

Research Team at Nomura suggests that the President-elect Trump’s policies could have a significant negative impact on Asia and believes Donald Trump raises the risk of increased US fiscal spending, higher inflation (also partly from protectionism and immigration), and a need for the market to reprice a risk of faster paced US Fed hikes.

Key Quotes

“Our conviction to be short RMB remains high because of the direct and indirect risks to China from Donald Trump. Aside from the risk of faster paced Fed hikes, as highlighted in the 13-14 December FOMC minutes, the direct risks include Donald Trump potentially naming China a currency manipulator, or worse, imposing tariffs on China’s imports. If China is only named a currency manipulator, there is unlikely to be a substantial shift in China’s trade and FX policy. However, if Donald Trump imposes tariffs on China’s products, there is a risk that China will take retaliatory action, such as subjecting US companies to tax or antitrust probes, anti-dumping investigations and scaling back purchases of US products. In addition, the risk from a trade war will that China becomes more focused on the needs of its own economy, and allows greater policy flexibility, which would include a weaker RMB.”

“Beyond external risks to RMB, local risks include consistent net capital outflows (most recently reflected in the adjusted December FX reserve fall of USD31.6bn m-o-m), RMB overvaluation and a push in the medium term for increased RMB flexibility. Indeed, we view CNH (versus USD) appreciation at the start of 2017 as temporary, driven by consistent FX intervention and tight CNH liquidity. This follows earlier attempts to stabilise RMB depreciation expectations through lowerthan-projected fixings (30 out of 40 sessions from 15 November to 10 January 2017) and actions and threats from the government to reduce foreign currency demand. As such, even with the recent sharp CNH appreciation, we expect USD/CNH to move back towards the 7-figure over the next month with a likely break through this level to around 7.15 by around end-Q1 2017 (2.3% total return).”


13:25 USD/JPY rebounds from 6-week lows, retakes 114.00

The Japanese yen keeps the bid tone intact today amidst prevailing risk aversion, with USD/JPY regaining 114.00 and beyond.

USD/JPY rebounds from 113.60

After testing fresh multi-week lows in the 113.60 area in early trade, spot has managed to regain some traction and advance once again above the key barrier at 114.00 the figure.

Brexit fears have re-emerged over the weekend following news in the UK that PM T.May could intensify her stance on a ‘clear Brexit’ at her speech on Tuesday, triggering a wave of risk-off trade across the board and the subsequent demand for the safe haven.

Data wise in Japan, November’s Tertiary Industry Activity Index has matched estimates today, expanding at a monthly 0.2%, while US markets will remain closed due to the MLT holiday.

In the meantime, spot keeps its correlation with the performance of US yields well and sound for the time being - particularly the 10-year benchmark - while developments over the Bank of Japan and its never-ending battle to spur inflation expectations remains the leitmotif behind the pair’s price action in the next months (years?).

On the positioning side, JPY speculative net shorts have receded to 3-week lows just below 80K contracts during the week ended on January 10, as shown by the latest CFTC report.

USD/JPY levels to consider

As of writing the pair is retreating 0.30% at 114.20 facing the next support at 113.63 (low Jan.16) followed by 113.28 (55-day sma) and finally 111.98 (38.2% Fibo of the November-December 2015 up move). On the other hand, a break above 114.54 (23.6% Fibo of the November-December 2015 up move) would aim for 115.53 (high Jan.12) and then 116.37 (20-day sma).


13:23 BoC: Expect a more upbeat tone to the central bank s neutrality - BBH

Research Team at BBH notes that the BoC’s overnight rate will remain unchanged at 0.5%, and the anticipation of closing the output gap in mid-2018 also won't be altered.

Key Quotes

“However, we flag this because we expect a more upbeat tone to the central bank's neutrality.  Also, we suspect that in the US dollar appreciation that we expect to resume shortly, investors will also look for alternatives to the greenback and the Canadian dollar is a potential candidate.  The Canadian dollar was the strongest of the major currencies against the US dollar in 2016, gaining almost 3%. The US dollar has been sold from CAD1.36 on December 30 to nearly CAD1.30 on January 12.   The US two-year premium has fallen from nearly 48 bp to 39 bp at the end of last week. It is approaching the lower end of a range  (~35 bp) that has been sustained since the middle of November.  The US premium had risen steadily from below six bp last-July.    The US 10-year premium more than doubled from last April's 32 bp to 81 bp peak in late-November.  It has subsequently pulled back and has not been above 70 bp since January 4.”


13:11 EM FX: Winners and losers Nomura

In view of the analysts at Nomura, President-elect Trump’s economic policies, along with numerous other global concerns will remain significant drivers of EM FX over the next few months.

Key Quotes

“We believe some of the biggest losers will be MXN and CNH. We highlight this year’s likely winners and losers and make the following recommendations.”

“Long USD/CNH, targeting 7.15 by end-Q1 (total return of +2.3%). Capital outflows, macroeconomic and policy challenges, external risks and FX valuations remain negative drivers of CNH.”

“Long CAD/MXN, targeting 18.0 by end-Q1 (total return of 9.6%). Mexico is the most exposed to President-elect Trump’s policy risks, while domestic imbalances are growing. By contrast, Canada’s economy seems to be stabilising at the margin, its terms of trade are improving and rate cuts are unlikely to be imminent.”

“Relative outperformers in EM FX include INR and BRL. INR is supported by local macroeconomic fundamentals (growth and reforms) and reduced FX vulnerability. We think BRL is less of a target from the US versus its regional peers, it has a relatively low degree of trade openness, low external debt vulnerability and has high carry.”


13:09 NZD/USD sinks to low near 0.7080 level

The NZD/USD pair faded a spike to the highest level since December 14 and retreated back below 0.7100 handle.

Currently hovering around the very important 200-day SMA near 0.7080 region, the pair snapped its recent upward trajectory and ran through fresh offers near 100-day SMA resistance as investors seemed to trim some bearish USD bets ahead of the President-elect Donald Trump's inauguration on Friday. In fact, the key US Dollar Index is holding with gains of 0.5% around 101.70 region and has been the key factor collaborating to the pair's retracement from multi-week highs. 

Meanwhile, a mildly positive sentiment around commodity space was seen lending some support to the commodity-linked currencies, including the Kiwi. However, it remains to be seen if the pair is able to defend 50-day SMA session near 0.7065 region or the long-unwinding pressure would continue to drag the pair ahead of this week's macro releases, including the NZ GDT price index, US CPI and important Chinese macro data. 

Technical levels to watch

A follow through selling pressure below 50-day SMA support near 0.7065 region is likely to accelerate the slide towards 0.7020 support area, en-route 0.70 psychological mark and 0.6985 support. On the upside, recovery back above 0.7100 handle might now confront resistance near 0.7125 level. Momentum above 0.7125 resistance could get extended but might continue to be capped at 100-day SMA hurdle near 0.7150 region.

 


13:05 QE: How much will the ECB have to buy below depo in Germany in 2017? Danske Bank

Research Team at Danske Bank notes that as of 2 January, it has been possible for the ECB to undertake QE purchases below the level of the deposit rate ‘to the extent needed’.

Key Quotes

“In this note, we estimate how much buying below depo will be required in German government bonds in order not to breach the 33% issue limit under different rate scenarios for 2017.”

“We estimate that 15% of the QE purchases in German government bonds will have to be below the deposit level in our base scenario, with unchanged yields on German bonds throughout 2017. If purchases ‘below depo’ are postponed as long as possible, ECB purchases could continue ‘unchanged’ until November before QE would be forced ‘below depo’ in German government bonds. Admittedly, these estimates are very sensitive to the rate level, the fraction of government bonds versus agency/regionals in QE purchases and to some extent, the historical purchases pattern on the German curve.”

“The estimate is in particular sensitive to the development in yields in the 1-6Y segment on the German curve. In a scenario where the yield on German bonds increases 25bp across the curve, the ECB could avoid ‘buying below depo’ in 2017 and wait until March 2018 before being ‘forced’ below depo (assuming QE at EUR60bn per month continues beyond December 2017). On the other hand, if yields decrease 25bp, the ‘QE fraction below depo’ would increase to 40% of 2017 QE, and buying below depo would be forced to commence in August.”

“There has been no guidance on how ‘QE below depo’ will be implemented; hence, whether buying will be proportional or skewed towards higher yielding (closer to depo).”

“These insights have interesting implications for a possible extension of QE into 2018. As QE holdings will have hit the issue limit, all QE purchases will have to be done below the ‘depo level’ aside from the 33% new issuance (equivalent to EUR30-40bn in purchases above depo). An alternative to substantial purchases ‘below depo’ could be a deviation from the capital key. In our view, this is still a likely scenario as we approach the end of the ’QE era’, where in particular the periphery is likely to be in need of sustained support in order to avoid material spread widening.”


13:00 MXN: Anatomy of a downfall Deutsche Bank

In view of the research team at Deutsche Bank, the current devaluation of the MXN is almost unprecedented in both nominal and real terms.

Key Quotes

“While there is scope for a cyclical recovery of the MXN, we identify structural elements in Mexico’s economy that are likely to limit the extent to which the USD/MXN can rebound. Trade-related market drivers of the MXN such as the CNY are likely to be a drag on the peso. Financial-related drivers of the currency such as the DXY are also likely to weigh on the MXN. Structural changes in the oil market, the increased sensitivity of the MXN to Mexico’s oil production, and the persistent oil trade deficit should also prevent a significant appreciation of the MXN. Finally, in the very long term we believe that the MXN weakness is likely to persist due to the surprisingly weak trajectory of Mexican productivity.”

“A rebound of the USD/MXN is likely but we believe it would not be lasting. At this juncture we express our view regarding the fundamental weakness of the MXN by being short via options. The ongoing uncertainty regarding US future trade policy, Mexico’s declining oil production, and the emergence of political and social noise as salient domestic risks underpin our relatively bearish view on the currency. We favor owning USD/MXN calls and suggest adding RKIs or WKOs overlays to cheapen the trade.”


12:56 US: HIA could impact FX spot, basis swaps, foreign banks balance sheets and US equity - Nomura

According to the analysts at Nomura, the Trump administration is likely to provide a tax-holiday on the repatriation of foreign earnings by US firms, similar to the HIA of 2005, as part of its business tax reforms.

Key Quotes

“By taking a micro approach to estimating the resulting potential repatriation flow, we estimate that around $1trn of funds could be repatriated, about double our original estimate. Based on the composition of those firms’ holdings of liquidity, we estimate that the potential repatriation flow going through the FX market could reach $240bn, bigger than our original estimates, affecting mainly EUR\USD, but also to a lesser extent USD\CAD, GBP\USD and USD\CHF.”


12:52 CAD is vulnerable to an equity correction Deutsche Bank

In view of the Sebastien Galy, Macro strategist at Deutsche Bank, while we can track spot flow, it is only possible to infer the equity flows into Canada from their hedging pressure on the cross currency basis.

Key Quotes

“Nonetheless, we do know that the post election period was one of risk taking and that over the past few quarters inflows into Canadian equities have been strong.”

“Going forward, the resilience of the Canadian dollar depends on continued equity flows supported by higher oil prices. Lower oil/equity prices would leave the Canadian dollar particularly vulnerable given heavy foreign ownership in Canadian equities and oil positioning. In particular, the S&P/TSX energy sector is quite sizable and the overall index is expensive on a P/E basis versus the S&P500.”


12:44 Germanys Bundesbank: No comment on talk of QE buying below deposit rate

An official from the German Bundesbank (Buba) came out on the wires and denied commenting to the latest reports, as cited by traders that the government is buying bonds below the ECB’s deposit rate for the first time.

ECB have also declined to comment, Reuters reports.


12:33 USD/JPY stable above 116.00 UOB

USD/JPY is expected to stabilize above the 116.00 handle, noted FX Strategists at UOB Group.

Key Quotes

“In line with expectations, USD dipped initially towards 114.20 (low of 114.18) before rebounding quickly to exceed the 115.05/10 target with a high of 115.44. The subsequent sharp drop from the high is gaining momentum and a move below last week’s 113.73 low would not be surprising”.

“The immediate bias is still tilted to the downside but downward momentum is showing signs of waning. However, confirmation of a short-term low is only upon a move above 116.00. Until then, another leg lower below last week’s 113.70/75 low (next support at 113.10/15) cannot be ruled out just yet even though the odds for such a move are not high”.

 

 


12:32 EUR/USD looks to regain 1.06 amid negative equities

The ongoing rally in the greenback across the board appears to have lost legs, propelling a tepid-recovery in EURUSD in a bid to regain 1.06 handle.

EUR/USD supported at 1.0580

Currently, the spot now drops -0.48% to 1.0594, reversing from session lows of 1.0580 reached last hours. The EUR/USD pair takes on a minor-recovery amid stalled USD buying against its main competitors, while weaker tone seen around the European indices also  offer some support to the funding currency euro.

Moreover upbeat trade balance figures from the Euroland also provide fresh legs to the recovery seen in the main currency pair.  The Eurozone trade balance for November arrived at 22.7bn vs 20.8bn expectations.

Nothing of note in the NA session ahead for the major, as the US markets remain closed in observance of Martin Luther King Day. Hence, the spot would remain at the mercy of the USD dynamics and broad market sentiment for further momentum.

EUR/USD Technical Levels

In terms of technicals, the pair finds the immediate resistance 1.0650 (psychological levels). A break beyond the last, doors will open for a test of 1.0687 (5-week tops) and from there to 1.0700 (zero figure). On the flip side, the immediate support is placed at 1.0580 (daily low) below which 1.0553 (50-DMA) and 1.0526 (20-DMA) could be tested.

 


12:28 AUD/USD upside bias mitigated below 0.7380 Commerzbank

Karen Jones, Head of FICC Technical Analysis at Commerzbank, noted AUD/USD should keep its positive bias while above 0.7380.

Key Quotes

AUD/USD charted an inside day on Friday to leave our view unchanged. Last week reached its 200 day ma and is approaching the .7523 December high, we have exited our long positions as we suspect that this may hold the initial test. Currently the market will have to go sub .7380 to alleviate immediate upside pressure and trigger a slide back to the .7312/00 then .7161/64”.

“Above .7525 we would allow for the .7648 2013-2016 channel (where it should fail) . Even this move will remain within the realms of a correction only. We view AUD/USD as having topped longer term and maintain a bearish bias”.

 

 


12:21 US Dollar firmer, albeit off highs near 101.70

The greenback – tracked by the US Dollar Index – has started the week on the firmer footing, reclaiming the 101.70 region although easing some pips afterwards.

US Dollar focus on data

The index has recovered the smile on Monday, posting moderate gains after three consecutive sessions with losses against the backdrop of a pick up in the global risk aversion.

The demand for the Dollar has gathered traction in response to heightened risks on the likeliness of a ‘hard Brexit’ outcome in the UK after PM Theresa May is expected to intensify her stance of a ‘clear Brexit’ at her speech on Tuesday.

Markets in the US will remain closed today due to the MLT holiday, while the docket is expected to grow in importance in the upcoming sessions, with CPI figures, Fedspeak and Trump’s inauguration all expected to keep the attention on the buck.

Last week’s selling pressure around USD has been reflected in the latest CFTC report, with speculative longs have retreated to 2-week lows during the week ended on January 10.

US Dollar relevant levels

The index is gaining 0.44% at 101.62 facing the immediate resistance at 102.45 (20-day sma) ahead of 102.96 (high Jan.11) en route to 103.81 (2017 high Jan.4). On the flip side, a breakdown of 100.98 (55-day sma) would open the door to 100.70 (low Jan.12) and finally 99.49 (low Dec.8).


12:12 GBP/USD: Recovery from Hard-Brexit sell-off stalls at 1.2085

The GBP/USD pair attempts yet another bounce beyond 1.20 handle, after the major reversed a brief dip to almost four-month lows struck at 1.1988 just ahead of the European open.

GBP/USD capped near daily R2 at 1.2083

The cable is seen meeting fresh supply on every attempt to fill in the bearish opening gap, on increased expectations that Tuesday’s speech by the UK PM May will signal a Hard-Brexit, as she remains on track to invoke the Article 50 by the end of March.

Further, any bounce in the GBP/USD pair may remain short-lived as markets remain unnerved also ahead of this week’s UK Supreme Court hearing on the Article 50 challenge, which the government is widely expected to lose.

Later today, the two-way trades in the major may be exaggerated in light of thin volumes as the US markets are closed on account of a National Holiday.

GBP/USD Levels to consider            

In terms of technical levels, upside barriers are lined up at 1.2083/ 85 (daily R1/ high), 1.2100 (zero figure) and 1.2125 (5-DMA). While supports are aligned at 1.1988 (multi-week low) and 1.1850 (post-Flash crash low) and below that at 1.1800 (key psychological support).

 


12:02 European Monetary Union Trade Balance s.a. came in at 22.7B, below expectations (23.2B) in November


12:01 European Monetary Union Trade Balance n.s.a. above expectations (22B) in November: Actual (25.9B)


11:50 European stocks drop, Auto & banking stocks lead declines

The stocks on the European bourses had a softer start to the weak, and adds further to the downside, as sentiment soured on weekend’s media reports, which revealed that the UK PM May calls for a Hard-Brexit, as she remains on track to trigger Article 50 by March-end.

While the UK’s FTSE 100 index renewed record highs beyond 7350 levels on GBP weakness, which drove the exports-oriented stocks through the roof.  However, the London stocks failed to sustain at higher levels and fell back in the red, as Hard-Brexit concerns weighed on investor’s appetite for risk assets.

Moreover, sharp declines in the auto and banking sector stocks also collaborated to the downbeat tone on the European equities. The auto stocks were hit by comments from President-elect Trump delivered over the weekend, when he raised the spectre of a so-called 'border' tax on German car built in Mexico but. imported into the United States.  Also, in thin volumes, as the US markets observe Martin Luther King Jr. holiday exaggerated the moves.

Meanwhile Germany's DAX 30 index drops -0.50% to 11,570 levels, while the UK’s FTSE 100 index trades modestly lower at 7,335. Among other indices, the French CAC 40 index slides -0.54% to 4,895 levels. The pan-European Euro Stoxx 50 index skids -0.47% to trade just ahead of 33k mark.


11:33 Oil: Potential upside in prices is more limited Deutsche Bank

Sebastien Galy, Macro strategist at Deutsche Bank, notes that the oil prices have steadily recovered since the US election but its dynamics are increasingly less favorable.

Key Quotes

“OPEC production cuts drove oil prices higher leaving speculator positioning close to historical highs at a time when the IEA finally projects an increase in US shale production. Rising production or expectation thereof should eventually cap the potential upside in oil prices. The supply takes time to increase as it involves exploration, drilling and extraction.”

“Since May 2016, the Baker Hughes rig count has steadily increased at a fairly constant pace from very low levels with likely more difficulty in financing such projects than in the past. Commodity strategy’s onshore model-implied forecast shows a rapid acceleration in crude oil supply that becomes sizable in the second half of 2017. They expect the WTI to average around fifty five dollars in 2017.”


11:29 MXN and CNY vs. Trumponomics - Rabobank

Research Team at Rabobank notes that since the election of Donald Trump as US President both CNY and MXN have weakened vs. USD – however, the former has declined just a little while the latter has collapsed.

Key Quotes

“Given Mexico’s vast exposure to the US economy relative to China’s that makes sense.”

“However, China would also be vulnerable to US trade barriers given the only thing preventing its FX reserves from declining even faster is the trade surplus it runs.”

“Overall, it still seems likely to us that over the course of 2017 China will opt to let CNY weaken. On that basis, MXN’s underperformance relative to CNY may be about to change.”


11:28 AUD/USD extends rejection move from 0.7500 important barrier

The AUD/USD pair once again failed to build on to its momentum above 0.7500 psychological mark and was rejected at 200-day SMA barrier.

Currently trading around 0.7460 region, testing session lows, the pair ran through fresh offers at higher level as investors seemed to unwind their bearish USD bets ahead of President-elect Donald Trump’s inauguration speech scheduled Jan. 20. In fact, the key US Dollar Index was seen flirting with highs near 101.70 level. 

The pair even shrugged-off upbeat Australian MI inflation gauge and failed to clear the very important 200-day SMA barrier and extended its retracement from the vicinity of last week's 4-week high. 

With the US markets closed in observance of Martin Luther King Day, the pair's movement on Monday will remain dependent on the overall US Dollar price dynamics and broader market risk sentiment. However, this week's key economic releases / events – including US inflation print and Australian employment details, would help investors determine the pair's next leg of directional move. 

Technical levels to watch

Immediate support on the downside is pegged near 0.7450 region, which if broken has the potential to drag the pair back towards 50-day SMA support near 0.7410-0.7400 region ahead of 0.7380 strong horizontal support. 

On the flip side, 0.7500 mark (200-day SMA region) remains immediate strong barrier, which if cleared decisively has the potential to lift the pair beyond Dec. highs resistance near 0.7520-25 region, towards testing its next major hurdle near 0.7560-65 region.

 


11:25 USD/CAD is a buy around 1.28 Deutsche Bank

Sebastien Galy, Macro strategist at Deutsche Bank, suggests that the USD/CAD is a buy around 1.28 following a more hawkish tone from the Bank of Canada, targeting 1.40.

Key Quotes

“The loonie is the only major currency up versus the dollar since Donald Trump was elected. Higher oil prices drove the loonie eleven cents higher, though eight of these were lost to rising Fed tightening expectations. This held with pre election sensitivities. Post election, the correlation with oil prices rose sharply higher. Going forward, DB forecasts WTI to fluctuate around fifty dollars in 2017, while the potential upside in oil prices is more limited as supply eventually increases. The loonie is particularly vulnerable to lower oil prices where positioning is extreme, especially when combined with an equity correction given Canada's balance sheet.”

“Policy differentials and politics should increasingly drive USD/CAD first lower and then sharply higher. Next week could see the market start to price in a rate hike as Poloz turns more hawkish given that the economy performs well and continues to surprise positively. This should drive USD/CAD lower leaving levels to buy in potentially around 1.28. However, measures to cool down the housing market should have increasingly negative effects on CPI while the odds of a foreign tax in the ebullient Toronto market should increase.”

“The elephant in the room though is the promised tax on exports to the United States, when Canadian productivity is still so low. It should already dampen investments and reduce potential growth. Faced with this, the Bank of Canada may threaten to tighten but is unlikely to be in a hurry. Canadian authority may prefer to put more pressure on the housing market keeping CPI below target. This and our existing dollar view should help USD/CAD overshoot to our 1.40 Blueprint target, starting at levels potentially around 1.28.”

“The risks are that our dollar view does not pan out, Canadian CPI fails to fade lower and a US/China trade war.”


11:23 GBP remains fragile amidst Brexit concerns Danske Bank

Jens Sorensen, Chief Analyst at Danske Bank, highlighted the weak outlook around the Sterling.

Key Quotes

GBP has sold off significantly overnight, with EUR/GBP breaking above 0.88 while GBP/USD dipped temporarily below 1.20 earlier this morning”.

“The sell-off was triggered by a report in Sunday Times saying that the UK Prime Minister Theresa May’s speech on Brexit plans on Tuesday will indicate that the UK government is prepared to opt for a hard and clean Brexit”.

“As such, GBP is likely to remain under pressure in coming months as Brexit uncertainties will continue to weigh on the currency, and a new test of the ‘flash crash’ highs cannot be ruled out in the near term”.

“However May’s speech on Tuesday is not the only milestone for GBP in the short term as the Supreme Court’s ruling on whether it is the government or the parliament that can trigger the Article 50 is expected later this month. If the government wins its appeal at the Supreme Court, the market is likely to price in a higher probability of a hard Brexit and thus drive further GBP weakness. If it does not, the government will have to negotiate with the parties in parliament in order to secure a vote in favour of triggering Article 50, thus making a hard Brexit less likely. Given the past weeks’ sell-off in GBP, the latter could lead to a short covering rally in GBP”.

 

 


11:14 EUR/USD constructive above 1.0500 UOB

FX Strategists at UOB Group noted EUR/USD's outlook remains positive while above the 1.0500 handle.

Key Quotes

EUR registered an ‘inside day’ last Friday and there is no change to our view wherein we deem the short-term outlook as ‘positive’ as long as the key 1.0500 support is intact”.

“However, it is unclear at this stage if EUR can move higher in a sustained manner (even though technically the next significant resistance is at the 1.0872 high seen in early December)”.

 

 


11:12 Turkey Budget Balance declined to -27B in December from previous 10B


11:11 India Trade Deficit Government fell from previous $13.01B to $10.37B in December


11:09 UK PM Mays Spokeswoman: Talk of hard Brexit is speculation

Reuters quotes the spokeswoman for the UK PM Theresa May, as she soothes markets by saying that the talk of hard Brexit is "speculation."


11:03 Italy Consumer Price Index (MoM): 0.4% (December)


11:03 BOJ: Recent yen falls help boost business confidence

The Bank of Japan (BOJ) Nagoya Branch Manager was on the wires last minutes, commenting on recent declines in the yen and its impact on the region’s firms.

Key Headlines:

Recent yen falls will likely give firms in region room to revise up profit estimate 

Help boost business confidence

Many firms in region say they want to see whether recent yen falls will be sustained


11:03 Italy Consumer Price Index (YoY): 0.5% (December)


11:03 Italy Consumer Price Index (EU Norm) (MoM) in line with expectations (0.4%) in December


11:03 Italy Consumer Price Index (EU Norm) (YoY) in line with forecasts (0.5%) in December


10:55 EUR/USD slips below 1.0600 handle

The EUR/USD pair ran through some offers during early European session and reversed early gains to session peak level near 1.0635 region.

The pair subsequently accelerated the slide and has now dropped below 1.0600 handle. A fresh bout of greenback buying interest, with the key US Dollar Index testing session peak near 101.50 region, seems to be the only factor attracting some sellers near 50-day SMA region. 

Meanwhile, the market seems to have ignored comments from ECB Governing Council member Francois Villeroy that Euro-zone inflation is no cause for concern as focus remains on the European Central Bank monetary policy meeting on Thursday. 

Also in focus would be the US President-elect Donald Trump's inauguration on Friday, which would help investors determine the pair's next leg of directional move.

Technical levels to watch

A follow through retracement below 1.0580-75 support is likely to drag the pair back towards 1.0555-50 support area ahead of 1.0510-1.0500 important support below which the pair is likely to extend the slide further towards its next support near 1.0450 region.

On the upside, 50-day SMA near 1.0620 region now seems to have emerged a strong resistance, which if cleared decisively might trigger a short-covering rally, even beyond last week's one month high resistance at 1.0685 level, towards reclaiming 1.0700 handle, en-route its next major hurdle near 1.0755-60 region.

 


10:52 GBP/USD expects further downside below 1.2085/38 Commerzbank

According to Karen Jones, Head of FICC Technical Analysis at Commerzbank, Cable could face extra declines on a close below the 1.2085/38 area.

Key Quotes

GBP/USD continues to show signs of failure at the near term downtrend at 1.2311. It has eroded recent lows from 1.2085/38, and sold off to the 61.8% Fibo at 1.1982. A close below 1.2085/38 would mean a continuation of the descent and should trigger losses to 1.1775 and then 1.1481 the recent spike low. We have a large time zone gap back to 1.2130 and his may be filled ahead of further declines”.

“Above 1.2311 resistance is found at the 55 day ma at 1.2410 - above here we are likely to see a challenge of the 1.2474 resistance line. While capped here, a negative bias will remain entrenched, this resistance is reinforced by the 100 day ma at 1.2581”.

 

 


10:50 Saudi OilMin Al-Falih: Will extend OPEC deal if necessary

Bloomberg reports latest comments from the Saudi Arabian oil minister Al-Falih, responding to a media question about the OPEC deal extension.

Key Headlines:

Not necessary to extend OPEC deal

Will extend supply deal if necessary

We don't want to create shortage of a squeeze in the market, when asked about the deal extension


10:42 GBP/USD looks to extend the bounce above 1.2000

Despite the recovery from lows near 1.1980 in the Asian trading hours, GBP/USD remains weak and struggling to keep the trade above the 1.2000 handle.

GBP/USD tumbles on Brexit concerns

The likeliness of a ‘hard Brexit’ scenario has picked up extra pace at the beginning of the week following increasing unease prior to the speech by PM Theresa May on Tuesday.

In fact, news over the weekend said that PM T.May could unveil her views that the UK should withdraw from the single market and the customs union, adding to the Eurosceptics stance. May is said to be expecting to reach trade deals with New Zealand, America and India among another countries

Spot has opened with a gap lower to the vicinity of the 1.1980 area, levels last seen in early October following the GBP’s ‘flash crash’, although it has managed to at least retake the 1.2000 key barrier.

Later in the session, Governor M.Carney is due to speak at the London school of Economics, ahead of inflation figures (Tuesday), labour market report (Wednesday) and retail sales (Friday).

From the positioning side, GBP speculative net shorts have climbed to 4-week highs on the week to January 10, as per the latest CFTC report.

GBP/USD levels to consider

As of writing the pair is losing 1.08% at 1.2043 and a breach of 1.1988 (low Jan.16) would open the door to 1.1450 (GBP ‘flash crash’ Oct.7). On the flip side, the next hurdle aligns at 1.2119 (low Jan.13) followed by 1.2242 (20-day sma) and finally 1.2318 (high Jan.12).


10:42 ECBs Villeroy: Concern about inflation return is greatly exaggerated

European Central Bank (ECB) governing council member and Bank of France head Villeroy was out on the wires now, via Reuters, commenting on Eurozone’s inflation levels.

Key Headlines:

Concerns over the return of inflation are greatly exaggerated

Puzzled by slow German wage growth


10:25 Gold holding stable above $1200 mark amid risk-off mood

Gold gained some fresh traction on Monday and rose to fresh seven week high amid prevalent risk-off mood. 

Currently trading around $1203 region, off session peak level of $1208, renewed concerns of a 'hard Breixt', following weekend news report over the UK Prime Minister Theresa May's upcoming speech on Tuesday, triggered a fresh wave of global risk aversion and provided a boost to the precious metal. 

Moreover, receding post-US election optimism over prospects of stronger US economic growth, led by the incoming Trump administration, drove flows back towards the yellow metal. 

However, a solid greenback comeback, with the key US Dollar Index staging a strong recovery of nearly 0.5% for the day, was seen collaborating towards restricting further upside for dollar-denominated commodities, including gold.

Going forwards, lack of fresh fundamental drivers, with an empty economic docket, would keep the yellow metal dependent on broader market risk sentiment and US Dollar price-dynamics. 

Technical levels to watch

A follow through retracement below $1200 mark, and a subsequent break below $1194 support is likely to accelerate the slide back towards 50-day SMA support near $1185 region. On the upside, sustained move above multi-week highs resistance near $1206-08 region has the potential to continue boosting the metal further towards $1215-16 resistance area, en-route its next major hurdle near $1330 region.

 


10:11 EUR/USD seen lower in the near term Danske Bank

Chief Analyst at Danske Bank Jens Sorensen sees the pair grinding lower within the next 3 months.

Key Quotes

EUR/USD has been trading with a bid tone since Donald Trump’s press conference on Wednesday where he provided absolute nothing concrete on his economic plans”.

“The cross has broken up through the 55-day moving average and a break of the 1.0700-1.0750 range will open the door for further near-term gains, especially if the ECB comes across as slightly hawkish on Thursday (though this is not our base case)”.

“However, we look for EUR/USD to move lower on a three-month horizon as the market prepares for the next Fed hike and uncertainty over European politics intensifies around the French elections in April/May”.

“However, we retain the view that EUR/USD will move higher later in the year on the back of strong current account flows in favour of the euro area and that the euro is fundamentally undervalued”.

 

 


10:01 Signs of exhaustion apparent in USD/NOK

Outlined from an hourly perspective, the [pair] is being carried into new low ground but reflecting an extremely low volatility.

Usually associated with the formation of narrow consolidation ranges, there is a chance for volatility to expand again and for price to break out and start a new upward trajectory. Conversely, an extra selloff is also likely should the immediate range support fail.

Traders are advised to maintain a degree of neutrality until a strong break in either direction ensues.

10:01 Czech Republic Producer Price Index (MoM) climbed from previous 0.1% to 0.5% in November


10:01 Czech Republic Producer Price Index (YoY) increased to 0.4% in December from previous -1.3%


10:00 GBP: UK Prime Minister Mays Brexit speech in focus MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound has weakened sharply early in the Asian trading session resulting in cable breaking below the 1.2000-level for the first time since the flash crash on the 7th October.

Key Quotes

“Pound weakness has been driven by heightened “hard” Brexit fears ahead of tomorrow’s keynote speech from UK Prime Minster May in which she is expected to outline further details of her government’s Brexit strategy.”

“The weekend press have speculated that Prime Minister May will use the speech to more clearly signal that the government is willing to walk away from the single market and customs union if it is not able to regain control of the UK’s borders and domestic laws. By leaving the customs union it will also allow the UK to strike its own trade agreements. PM May is expected to signal that she wants the people to unite to build a “global Britain” rather than become more inward looking following Brexit.”

“The speculation is broadly consistent with the message already sent by the UK government since the referendum. It supports our view that the UK government is not planning to remain a full member of the single market.”

“We will be watching PM May’s speech closely to see if the government reveals any further details over the type of bespoke trade agreement that it hopes to achieve. However, we remain doubtful that the she will provide much further details given the government’s view that it could undermine negotiations with the EU.”

“The initial knee jerk selling of the pound overnight on the back of the reports is understandable as they heighten “hard” Brexit concerns. However, the reports should not have come as much of a surprise to the market as they are broadly consistent with the signals that the government had already delivered on its Brexit strategy. The pound has already adjusted sharply lower in response to Brexit concerns which should help to limit the scope for further weakness. It could even prove the case that the pound is close to reaching a low point in the near-term as “hard” Brexit fears are reaching a peak. In particular the pound could begin to rebound against the euro in the coming months when the market’s focus is likely to shift more towards heightened political risks in Europe.”


09:57 GBP/USD further downside likely UOB

GBP/USD remains poised for further weakness in the near term, suggested FX Strategists at UOB Group.

Key Quotes

“We turned neutral last Friday after when the bearish stop loss was taken out at 1.2290”.

“The gap lower this morning was clearly unexpected and the immediate risk has shifted to the downside again”.

“However, it is uncertain whether the current GBP weakness can be sustained even though on a shorter-term basis, there is room for extension lower towards 1.1900”.

“Last Friday’s low near 1.2120/25 is acting as a strong resistance but only a move above 1.2200 would indicate that the immediate downward pressure has eased”.

 

 


09:56 USD/JPY recovers back to 114.00 mark

The USD/JPY pair maintained its bearish bias for the sixth consecutive session and dropped to its lowest level since Dec. 8. The pair, however, has managed to bounce off around 35-pips from session low and is currently hovering around 114.00 handle.

Renewed concerns of a ‘hard Brexit’ triggered a fresh wave of risk-aversion and benefitting the Japanese Yen's safe-haven demand. This coupled with uncertainty surrounding the incoming President-elect Donald Trump administration's fiscal stimulus policies has been prompting investors to continue with long-dollar unwinding trade on Monday. 

With the US markets closed in observance of Martin Luther King Day, the broader market risk sentiment and the US Dollar price-dynamics would remain key drivers for the pair's movement on Monday.

Technical levels to watch

Weakness below session low support near 113.65 level is likely to find support at 50-day SMA near 113.50 region, which if broken decisively is likely to open room for continuation of the pair's near-term downward trajecotry initially towards 113.00 round figure mark and eventually towards its next major support near 112.00 handle, with some intermediate support near 112.50 area.

On the flip side, any further recovery might now confront resistance near 114.50 region above which the pair seems all set to head back towards reclaiming 115.00 handle. A follow through buying interest back above 115.00 psychological mark might now negate any near-term bearish bias and lift the pair immediately towards 115.35 intermediate resistance, en-route 116.00 round figure mark.

 


09:53 USD/JPY stepping back to recover stronger - SocGen

Olivier Korber, Research Analyst at Societe Generale, notes that the market is unwinding USD/JPY longs initiated on the premise of US reflation, a due breather which should extend until the market is convinced that the inflationary background will deliver its medium-term promise.

Key Quotes

“This will offer cheaper levels to reinstate fresh longs. The Treasury market remains too cautious regarding the Fed pace ahead, whereas the BoJ won’t tolerate exacerbated yen strength.”

History may repeat itself. At the 2012-2013 year turn and at the end of 2014, the USD/JPY experienced a fast acceleration, then lost one-fourth of its gains, and finally bounced above the previous peak. The latest 2016 fast uptrend also happened at the end of the year and a correction is starting. A repeat of the past patterns would involve a fall to 112-113 in the near term, before bouncing back towards and probably beyond the recent 118 high.”


09:45 Strong momentum but patient ECB Deutsche Bank

Analysts at Deutsche Bank suggests that their central case scenario is a patient ECB as they expect that the ECB should be reassured by broadly unchanged financial conditions after their decision to slow the pace of QE.

Key Quotes

The ECB won’t feel challenged by the recent data. Annualised euro-area growth in Q4 2016 could have been close to, if not above 2%. A broadbased improvement in industrial production in November reinforced the upbeat message from surveys. Indeed, SIREN-Momentum and SIREN-Surprise are in the top deciles of their respective readings over the past decade. It has been almost six years since both indices last were in their top deciles at the same time. That said, while the current macro momentum suggests upside risk relative to our (1.3%) and consensus (1.4%) GDP projections for this year, the ECB staff forecasts were already more optimistic in December (1.7%).”

If current data trends continue, the outright taper decision could accelerate to June rather than September, but the latter is our baseline. The key is whether inflation, especially core, is becoming more likely to exceed ECB forecasts. Euro area headline inflation should rise sharply in January and February, to 1.6% and 1.8% yoy respectively. That said, mid-year is the earliest that the less convincing core inflation will satisfy the minimum conditions for policy tightening.”

However, the ECB won’t be afraid to change plans, if necessary. If a "sustainable adjustment" in inflation is reached, we don't think the ECB would hesitate to act, even changing the current plan.”


09:45 EUR/USD a test of 1.0820 is not ruled out Commerzbank

In view of Karen Jones, Head of FICC Technical Analysis at Commerzbank, the pair could still test the 1.0820 area.

Key Quotes

EUR/USD has rallied towards and is stalling ahead of the 1.07 recent spike high, the market remains corrective. Currently we remain unable to rule out a move to 1.0820 50% retracement. The intraday Elliott wave counts are conflicting. There is scope for 1.0875 the December high. At this stage we are unable to rule out a move to the 200 day ma at 1.1039”.

“The market stays bid near term while above 1.0450. Failure here would cast attention back to the 1.0372/40 recent lows. We await a close below the 1.0372/40 lows from mid December 2016 to trigger another leg lower”

 

 


09:39 USD/CAD sticks to gains near 1.3130

After clinching session tops around 1.3150 during early trade, USD/CAD has run out steam and has now receded to the 1.3130 area.

USD/CAD focus on oil, data

The pair has fully faded the December upside, shedding around 5 cents since tops near 1.3600 the figure (December 28) and so far keeping the trade above the 1.3100 handle.

The unwinding of the Trump-led rally in the greenback plus renewed strength in crude oil prices following developments after the OPEC-non OPEC deal to limit the output has lent support to CAD, collaborating with the downside.

Looking ahead, the BoC interest rate decision on Wednesday, Trump’s inauguration on Friday and Fedspeak throughout the week should keep investors entertained. In addition, the usual reports on crude stockpiles by the API and the EIA will also be closely followed.

As shown by the latest CFTC report, speculators kept building its CAD net shorts positions during the week ended on January 10, reaching 3-week tops.

USD/CAD significant levels

As of writing the pair is advancing 0.15% at 1.3135 and a breakout of 1.3103 (200-day sma) would aim for 1.3028 (low Jan.12) and finally 1.3002 (low Oct.19). On the flip side, the initial hurdle lines up at 1.3188 (high Jan.12) followed by 1.3276 (100-day sma) and then 1.3311 (38.2% Fibo of the 2016 drop).

 

 


09:31 Tumble in EUR/SEK volatility

EUR/SEK ATR(14) is at minimums across several time frames, from 30min to daily charts.

Volatility shrunk to levels not seen in several weeks of trading independently from trend direction. This signal augurs poorly for short-term traders because they indicate less direction for trend following and less volatility for mean reversion. It is advised to look for a catalyst and subsequent change in dynamics before entering EUR/SEK trades.

09:26 Ex-Feds Bernanke: Trumps view on Chinas yuan doesnt fit with reality - CNBC

CNBC reporting comments from Fed Governor Ben Bernanke on Monday, citing that that President-elect Donald Trump calling China a currency manipulator doesn't "fit with reality," and warned about the dangers of a trade war.

Key Quotes:

"One of the things the candidate said he would do was label China a currency manipulator, which means that China is keeping its currency artificially low in order get an advantage in exports."

"Of course, China right now is working very hard to keep the renminbi from falling. So it's a little bit inconsistent."

"Our trading system is very important to our economy."

"It is a dangerous thing to try to interfere too much with our trade and I'm hopeful that this will be a very cautious process."

"I think what we're going to see is a lot of internal dissension, where different points of view are fighting it out within the administration and the president is sort of broadcasting to the public what he's thinking in the moment."

"So there's a lot of uncertainty."


09:16 China FDI - Foreign Direct Investment (YTD) (YoY) rose from previous 3.9%to 4.1% in December


09:14 USD/JPY: How correction will be over Deutsche Bank

According to the Taisuke Tanaka, Strategist at Deutsche Bank, if US fiscal policy fuels faster rate hike cycle outlook, USD/JPY could top ¥120.

Key Quotes

“The USD/JPY entered a correction phase in the two-month "Trump rally" since the US presidential election. The Trump administration will take office on 20 January. We suspect the markets may stay in dull tone for coming months thereafter to gauge whether the president will carry through with his fiscal policy promises. We believe the path this year of the US economy, presently at near full employment, will depend on policy introduction rather than cyclically autonomous change. We do not consider it meaningful to predict market developments until US fiscal policy is clear. If fiscal policy buoys the economy, raising expectations of more than two rate hikes by the Fed within the year, the USD/JPY could rally again to the ¥120 level.” 

“Our US economist's latest forecast calls for US growth of 2.4% in 2017 and 3.6% in 2018. This appears to assume a rise to 3-4% growth from late this year to next year, when stimulus is enacted, which suggests that growth until that point can be unostentatious. The USD/JPY might experience a deeper fall if risk-off events occur outside the US or if the Trump administration moves to talk down the dollar. We had felt that the rate could slump to around ¥110 on at least a partial unwinding of long positions amassed by overseas speculators during the Trump rally.”

“At present, though, the rate has been firm at ¥113-115. Some importers may have seen their dollar-buying contracts knocked out, forcing them to repurchase. Some institutional investors have hesitated to buy new unhedged foreign bonds at the rich level of around ¥115, but may gradually unwind their hedged (dollar short) positions. We believe dollar selling from an unwinding of speculative long positions will be absorbed by such purchase of Japanese companies and investors with dollar short exposure, which should firmly keep the USD/JPY in a ¥110-115 range for some time.”


09:10 EUR/GBP clings to weekly bullish gap beyond 0.8800 handle

The EUR/GBP cross was seen consolidating weekly bullish gap up opening to two-month high level beyond 0.8800 handle.

Currently trading around 0.8830-25 region, a tepid recovery move around the GBP/USD major, following a retest of October flash crash lows, was seen restricting further upside for the cross.

However, a mild bid tone around the EUR/USD major was seen supporting the cross to hold on to its strong gains to the highest level since Nov. 9. 

Meanwhile, renewed concerns of a 'hard Brexit', in wake of weekend news report over the UK Prime Minister Theresa May's upcoming speech on Tuesday might continue to weigh on the British Pound and limit any immediate downslide. 

Technical levels to watch

A follow through buying interest above session peak resistance near 0.8845-50 region has the potential to lift the cross to 0.8870 intermediate resistance ahead of an important barrier near 0.8900 round figure mark. On the downside, 0.8810-0.8800 region now becomes immediate support to defend, which if broken is likely to accelerate the slide back towards 0.8765 support area, en-route 0.8735-30 horizontal zone.

 


09:03 Forex Today: GBP dumped on Hard-Brexit, EZ trade data Up next

The Asian session was dominated with moves-driven by a massive sell-off in GBP, after the UK press’ narrative on line of comments expected from the UK PM May on Brexit, as she unveils her Brexit-plans tomorrow.  A typical risk-off profile emerged in the markets on Hard-Brexit fears, boosting the demand for safe-havens such as gold, yen etc. While USD remained on the front-foot amid aggressive selling in GBP/USD.

Looking ahead, we have a data-light economic calendar, with the Eurozone trade balance data and ECB policymakers’ speeches due on the cards; will keep the EUR traders s lightly engaged. While thin liquidity and minimal volatility is expected to persist as the US markets are off on a National Holiday.

Main topics in Asia

GBP/USD start of week hard Brexit talk volatility, back on the 1.20 handle

GBP/USD is back above the psychological 1.2000 after a bearish opening gap that took the pound down over 200 pips vs the greenback at the start of a week when markets are awaiting PM to make a keynote speech regarding plans for Brexit.

Fitch: Australian banking sector on a negative outlook

Fitch rating agency is out with a note, warning that Australian banks are now on a negative outlook from stable. Fitch observes that the worsened outlook reflects an increase in macroeconomic risks and pressure on profit growth.

BOJ’s Kuroda: Will maintain QQE with YCC for as long as needed to achieve 2% price target

Bank of Japan (BOJ) Governor Kuroda was on the wires last hours, via Reuters, commenting on the bank’s monetary policy program.

Risk-off grips Asia amid Hard-Brexit concerns

The Asian markets opened the week on a weaker note, with most major indices down in the red zone, as investors move away from risky assets in wake renewed risk-aversion wave, triggered by re-emergence of Hard-Brexit fears.

Key focus for the day ahead

ECB speakers amongst market movers today – Danske Bank

Research Team at Danske Bank suggests that the main event today is the speeches by the ECB's Yves Mersch and Peter Praet ahead of the ECB meeting on Thursday.

Weekend press point to high risk UK Brexit strategy, market negative – Deutsche Bank

Oliver Harvey, Macro Strategist at Deutsche Bank, notes that the major UK Sunday newspapers report today that Tuesday’s Brexit speech by PM Theresa May will used to outline an uncompromising position including full control over immigration, sovereignty from ECJ decision-making and preparedness to exit the customs union.

EURUSD: Opportunity to re-load shorts - TDS

Ned Rumpeltin, European Head of FX Strategy at TDS, thinks that the recent rise of EURUSD above the 30 December spike high of 1.0653 suggests a further upward correction may be due in EURUSD.

Data preview for US economy: industrial production to rebound - Nomura

Analysts at Nomura noted the forthcoming US data and explained that they are expecting industrial production to rebound in December and steady advances in consumer prices. 

 


09:01 GBP/JPY is oversold on several parameters

The standout technical signal on a GBP/JPY 4hr chart is a plunge of the RSI below its 25% threshold.

At the same time, negatively aligned 50- and 200-period moving averages point at a continued GBP/JPY depreciation, with recent declines locking the RSI below the 50% mark. Worth mention is the 70% level which hasn't been explored for a while on the 4hr time frame.

Should the GBP/JPY be unable to wave any additional bearish impulses, the mentioned momentum readings raise the odds of a minor squeeze back upwards.

09:01 USD/HUF gaining upside traction

USD/HUF declines over recent weeks appear to have been temporarily stalled in the face of a bullish development.

The MACD line is tracing higher lows, when compared to recent sessions. Meanwhile, the meandering of the price structure is carving lower lows, which should give strong indication that we have seen the bottom on this pair for the time being.

09:01 Turkey 3mth quarterly jobless average climbed from previous 11.3% to 11.8% in October


09:01 Norway Trade Balance climbed from previous 15.1B to 23.3B in December


09:01 EUR/USD bounces off lows, around 1.0620

The single currency has started the week on a weak note, sending EUR/USD to test lows near 1.0600 the figure earlier in the Asian session.

EUR/USD weaker, focus on ‘Brexit’

The pair is losing ground for the first time after three consecutive advances following a pick up in the risk-off trade, as market participants remain cautious on the potential ‘hard Brexit’ scenario in the UK.

In fact, risk aversion in the global markets gathered traction after news published in The Telegraph and The Times cited PM Theresa May’s speech on Tuesday could lean towards a confirmation of her plans to leave both the single market and the customs union, favouring the eurosceptics’ view.

On the positioning side, EUR net shorts have been trimmed to levels last seen in late June during the week ended on January 10 according to the latest CFTC report, somewhat lending support to the recent upside seen in spot.

With US markets closed for the celebration of MLT’s holiday, market attention will remain on the potential Brexit-related headlines, amidst a very light docket in the euro zone, as Italian inflation figures and EMU’s trade balance results are only due.

EUR/USD levels to watch

The pair is now losing 0.19% at 1.0624 and a breakdown of 1.0518 (20-day sma) would target 1.0508 (low Jan.9) en route to 1.0452 (low Jan.11). On the flip side, the initial hurdle aligns at 1.0687 (high Jan.12) ahead of 1.0798 (high Dec.5) and the 1.0873 (high Dec.8).


08:51 ECB speakers amongst market movers today Danske Bank

Research Team at Danske Bank suggests that the main event today is the speeches by the ECB's Yves Mersch and Peter Praet ahead of the ECB meeting on Thursday.

Key Quotes

“There will not be any significant economic data releases today. The main events in the week include the speech by UK Prime Minister Theresa May on Brexit on Tuesday as well as the ECB meeting on Thursday. Furthermore, there are two speeches due to be given by the Fed's Janet Yellen. Finally, on Friday, there is the inauguration of President-elect Donald Trump.”        

“The earnings season continues this week with Morgan Stanley, Goldman Sacs, Citigroup, American express and IBM. The World Economic Forum is kicking off this week as well.”


08:38 GBP/JPY flirting with lows near 137.00 handle

The GBP/JPY cross gapped lower on Monday and got slammed to the lowest level since Nov. 21 on escalating fears of a 'hard Brexit'

Currently trading around 137.10 region, the British Pound came under intense selling pressure on Monday in response to weekend news reports that suggested UK PM Theresa May is all set to call for ‘hard Brexit’ during a much anticipated speech on Tuesday.  

Moreover, the prevalent risk-off mood, as depicted by weakness in equity market, is also lending support to the Japanese Yen's safe-haven demand and collaborating to the offered tone around the pair. 

From technical perspective, the cross extended last week's break down below the very important 200-day SMA and has now struggling to defend 50% Fibonacci retracement level of 126.70-148.46 recent leg of up-move. Hence, a follow through selling pressure below 137.00 handle would confirm a fresh break down and open room for extension of the near-term corrective slide.

Technical levels to watch

On a sustained break below 137.00 handle, the cross is likely to accelerate the slide towards 135.85-90 area ahead of 61.8% Fibonacci retracement level support near 135.00 psychological mark. On the upside, a convincing recovery above 137.50-55 resistance seems to assist the cross back towards 138.90-139.00 hurdle. Any further recovery beyond 139.00 handle might now be capped at 140.00 psychological mark, also coinciding with 38.2% Fibonacci retracement level.

 


08:30 India WPI Inflation climbed from previous 3.15% to 3.39% in December


08:30 India WPI Inflation climbed from previous 3.15% to 3.4% in December


08:30 Japan Machine Tool Orders (YoY) climbed from previous -5.6% to 4.4% in December


08:29 GBP/USD in flash crash region on 1.20, Hard-Brexit weighs

The GBP/USD pair gapped almost 200-pips lower at the start of a brand new week, and now extends its downside consolidation below 1.2050 levels as we head towards the European open.

UK PM May’s speech on Brexit eyed

The cable wavers in a tight range over the last hours, making minor-recovery attempts from a sharp bearish opening gap, after the Asian traders reacted negatively on weekend’s narrative from the UK press, citing that the UK PM May is expected to reveal more about her Brexit plans and could most likely call for a Hard-Brexit in her speech scheduled tomorrow.

Net short GBP positions highest in 8 weeks – ANZ

Moreover, the latest CFTC report showed that the speculators stayed bearish on the pound, sending the net bearish positions on the GBP to the highest levels in eight weeks. Also, this week’s UK Supreme Court ruling on Article 50 triggers will be also eagerly awaited for fresh cues on GBP/USD.

On the data-front, we have no significant updates from the UK docket, and hence, focus shifts towards Tuesday’s UK CPI report. On the US-side, there are no macro events on the cards as the US markets are closed in observance of a National Holiday.

GBP/USD Levels to consider            

In terms of technical levels, upside barriers are lined up at 1.2061 (daily R1), 1.2100 (zero figure) and 1.2125 (5-DMA). While supports are aligned at 1.1995 (multi-week low) and 1.1850 (post-Flash crash low) and below that at 1.1800 (key psychological support).


08:27 Japan: Outlook for wage rises remains bleak - Nomura

According to analysts at Nomura, Japanese employers and employees seems deaf to government's calls for wage rises.

Key Quotes

No sign of a pickup in the rate of wage rises from New Year events

Prime Minister Shinzo Abe has taken the opportunity provided by New Year events such as those organized by Japan's economic associations to reiterate his calls for companies to raise wages. However, we see no sign from the response of either employers (and their associations) or employees (and their trade union representatives) of any pickup in the rate of wage rises at this year's spring wage negotiations. Any discussion of what is happening to the Japanese economy, inflation, or market factors such as interest rates will have to assume for the time being that there will be no marked increase in wage rises.”

Deep-seated reluctance of employers to increase fixed costs

While Japanese business leaders share Abe's positive attitude towards wage rises in general terms, they appear to be slightly less enthusiastic when it comes to putting this into practice. With companies facing increasing uncertainty, they may well be more reluctant to increase the base pay of their regular employees as this would amount to an increase in fixed costs.”

The unions are also cautious about demanding wage rises

A certain reluctance of some trade unions to demand wage rises also appears to be an impediment to a pickup in the rate of wage rises. We think that the cautious attitude of the trade unions probably reflects the less optimistic view that companies now have of their growth prospects as well as the increasing uncertainty they face and that workers and their trade union representatives may tacitly prefer the stability of a job for life to a bigger increase in base pay.”

Limits to how far working practices can be reformed without freeing up the market for regular employees

In view of the attitude of employers and employees, the only way to overcome obstacles to speeding up the rate of wage rises would be to free up the market for regular employees to make the cost of employing full-time employees a variable cost. Similarly, safety nets such as vocational training and greater provision of unemployment benefits would be needed to overcome the concerns of workers and trade unions about freeing up the labor market for full-time employees. It seems that, as freeing up the market for full-time employees touches on the system of lifetime employment that forms the cornerstone of Japanese employment and working practices, it is off limits for those seeking to reform working practices such as the present government.”


08:20 Weekend press point to high risk UK Brexit strategy, market negative Deutsche Bank

Oliver Harvey, Macro Strategist at Deutsche Bank, notes that the major UK Sunday newspapers report today that Tuesday’s Brexit speech by PM Theresa May will used to outline an uncompromising position including full control over immigration, sovereignty from ECJ decision-making and preparedness to exit the customs union.

Key Quotes

“In an article for the Sunday Times, Brexit minister David Davis made clear that negotiating third-country free trade deals, difficult under continued customs union membership, would be a top priority. Davis also pointed to a transitional deal to smooth the UK’s exit, in line with recent rhetoric. Taken together, the reports represent a high-risk strategy for the UK’s initial negotiating stance and, in our view, are consistent with the market beginning to fully price a hard Brexit.”

“Most important is the Prime Minister’s reported willingness to forgo membership of the customs union. As has been well documented, a full exit from the customs union would be highly economically disruptive and would compromise investment in major UK export sectors such as autos.”

“Leaving the customs union would leave the UK a free hand to negotiate third-country trade deals, such as with China or the US. We are not optimistic, however, that third country deals could replace the UK’s existing trade arrangements soon. Trade deals are highly complex and it would be highly challenging to negotiate them under the current political timetable. The benefits of seeking third-country deals are also questionable given increasing evidence of protectionism and slowing global trade.”

“The reported hard-line stance is also likely to increase domestic political instability, with many MPs concerned that Single Market Access should be the highest priority for negotiations. It should also raise tensions with the Scottish government, with SNP leader Nicola Sturgeon having pledged her support for a second independence referendum if Scotland does not remain in the Single Market.”

“In terms of market implications we see press reports as a material negative should they prove accurate and a catalyst for the market beginning to price hard Brexit. We see a deterioration in political rhetoric around Brexit as a key catalyst for further sterling weakness and see the large terms of trade shock from full exit from the Single Market consistent with GBP/USD at 1.06 or EUR/GBP close to parity respectively.”


08:11 China: Ordinary import growth slows significantly in December - Nomura

Research Team at Nomura notes that the China’s slowing of export growth was led mainly by exports to developed economies as the export growth in USD terms fell to -6.1% y-o-y after rebounding to -1.6% y-o-y in November (Consensus: -4.0%; Nomura: -8.5%).

Key Quotes

“By destination, export growth to the US, EU and Japan all slowed, while export growth to ASEAN picked up slightly.”

“Ordinary import growth slowed markedly, despite the more modest slowdown in headline growth. Total import growth In USD terms moderated to 3.1% y-o-y from 4.7% in November (Consensus: 3.0%; Nomura: -1.0%), leaving a narrower trade surplus of USD40.8bn. Ordinary imports growth slowed by a more significant 7.9 percentage points (pp) to 4.8% y-o-y in December. Excluding commodity imports, the drop was even larger at 11.4pp. Commodity imports picked up in December, but this was driven mainly by higher prices, as import growth of both iron ore and crude oil in volume terms fell.” 

“Trade data suggest sluggish domestic demand in December. We are comfortable with our forecast of slightly slower production and investment growth in December. The annual trade surplus narrowed in 2016, which means the contribution from net exports to real GDP growth may have declined. We maintain our forecast for a slowing of real GDP growth to 6.7% in 2016 from 6.9% in 2015.”


08:06 USD/SEK: Rebounds are likely to be limited - Natixis

In view of the analysts at Natixis, a descending channel is developing in the daily chart and weekly indicators have turned markedly bullish for USD/SEK, leading to a deterioration of the medium-term technical configuration (ascending channel that had formed in the weekly chart is being undermined).

Key Quotes

“Under these conditions, any rebounds are likely to be limited. Keep an eye on the support at 8.9090 (lower band of daily Bollinger and lower bound of May 2016 to December 2016 ascending channel): if it gives way, this will release significant downside towards 8.7580 (9-month moving average) before the support at 8.5820 (monthly Bollinger moving average).”

“Take advantage of any rebounds towards 9.0440 to sell the USD/SEK, with as major target 8.5820 (setting the stop loss above 9.1570).”


07:48 BOJ raises economic view for three of nine regions

The Bank of Japan's (BOJ) quarterly regional economic report showed that the bank raises economic view for three of nine regions, noting that most areas saw a moderate economic recovery, Reuters reports.

It maintained its assessment for the remaining six regions.


07:39 Leveraged Funds net short JPY positions fell while net short GBP positions rose Nomura

Analysts at Nomura lists down the leveraged funds’ / asset managers’ balance breakdown according to IMM data for the week ended 10 January.

Key Quotes

JPY: Leveraged funds’ net short JPY positions fell for the first time in two weeks (52% vs. 60% last week).The highest level of net shorts in JPY in the last year was 60%, which was seen last week. Asset manager’s net short positioning in JPY remained steady on the week at 45%.”

GBP: Leveraged funds’ net short positioning in GBP rose significantly on the week (to 53% vs. 43% last week). The highest level of net short positioning in GBP in the last year was 61%, which was last seen in August. Asset managers’ net long positioning in GBP remained flat but on a falling trend at around 75%.”

AUD: Leveraged funds’ net short positioning in AUD rose markedly on the week (to 32% vs. 17% last week). The highest level of net long positioning in AUD in the last year was 48%, which was last seen in January 2016. Asset managers’ net short positioning in AUD fell to 30% vs. 59% in the previous week.”

MXN: Leveraged funds’ net short positions in MXN continued to fall for the third consecutive week (to 60% vs. 63% last week). The highest net short positioning in the last year was 77%, which was last seen in October. Asset managers’ net long positioning remained stable at around 77%.”


07:34 USD/JPY dumped to 114.00, Thursdays low eyed?

The bears take a breather in late-Asia/ early Europe, allowing a minor consolidative mode in USD/JPY  just ahead of 114 handle, while awaiting fresh impetus for the next push lower.

The spot was last seen exchanging hands at fresh session lows of 113.95, stalling its recovery at daily pivot of 114.26. The spot is mainly driven by RO-RO trends, as risk-aversion remains the main theme so far this session amid re-emergence of hard-Brexit concerns, underpinning safe-haven bids for the yen.

While the major fails to take advantage of broad based US dollar strength amid higher treasury yields, as all eyes now remain on the UK PM May, as she called for a Hard-Brexit in her recent speeches. Also, a fresh batch of US macro news combined with Fedspeaks will also play a crucial role for shaping up next direction in the spot.

USD/JPY Technical levels to watch 

The major finds immediate resistance at 114.58 (5-DMA). A break above the last, the major could test 115 (zero figure) and 115.50 (psychological levels) beyond the last. While to the downside, the immediate support is seen at 113.73 (Jan 12 low) next at 113.50 (key support) and below that at 113 (round number).

 


07:32 JPY and EUR shorts pared Deutsche Bank

Research Team at Deutsche Bank lists down the commitment of traders report for the week ended on Tuesday, January 10, 2017.

Key Quotes

FX: Specs pared 7K contracts and 4K contracts from their net shorts in JPY and EUR, respectively. However, they added 4K contracts to their net shorts in CAD futures.”

Interest Rates: Speculators increased their net shorts by $7.7 billion – in ten-year cash equivalents – to $99.4 billion, a third successive week of record low positions. The net positions are at nearly four standard deviations short even after adjusting for open interest. TY and FV net spec shorts reached new record highs of 395K (+50K) contracts and 437K (+27K) contracts, respectively. An exception was in TU futures where specs pared 35K contracts from their net shorts. Spec net short in Eurodollars also increased to a new record high of 2,442K (+326K) contracts.”

Commodities: Specs were bullish in metal futures as they added 13K contracts in gold net longs and over 3K contracts in copper and silver net longs, in each. They pared 7K contracts from their oil net longs.”

Equities: Specs removed 14K contracts from their net longs in S&P 500 consolidated, offsetting their additions from previous week. However, they added 8K contracts to their net length in Nasdaq mini futures.”


07:26 EURUSD: Opportunity to re-load shorts - TDS

Ned Rumpeltin, European Head of FX Strategy at TDS, thinks that the recent rise of EURUSD above the 30 December spike high of 1.0653 suggests a further upward correction may be due in EURUSD.

Key Quotes

“USD longs have come under broad pressure in the aftermath of the President-elect’s press conference Wednesday. This event has done little to boost the FX market’s confidence on the incoming administration’s policy priorities with respect to the economy. Indeed, currency investors were left with precious little to sink their teeth into as the focus was clearly on other political considerations. In particular, the PEOTUS offered little guidance on the expected fiscal stimulus and other issues of economic importance.” 

“Looking forward, we think the rise above the 30 December spike high of 1.0653 suggests a further upward correction may be due in EURUSD. We continue to believe that the current environment represents a correction, rather than a reversal, of the larger downtrend. We largely anticipated this development and were looking for a mild drawdown against some G10 currencies around the turn of the year. Unfortunately, this process has included the EUR and the 1.0850/75 zone becomes the next major area of focus.”  

“Policy divergence between the Fed and ECB remains a key driver. The ECB may provide further guidance but we expect the overall message from December to remain intact. At the same time, the Fed is shifting toward an incrementally more hawkish footing. This should help return momentum to the downside in the weeks ahead.” 

“We intend to view this latest uptick in spot as an opportunity to re-load EURUSD shorts from better levels. Importantly, we note that the move higher in spot has not been validated by similar developments in rate differentials. This, in our view, emphasises the likelihood that the rally seen in EURUSD will not be sustained.”  

“We continue to maintain a broadly bullish stance toward the USD. We remain long USD against a portfolio including the CAD and the NZD. While these positions are also looking somewhat vulnerable to a similar position squeeze— USDCAD in particular–we believe the fundamental backdrop remains constructive for the USD over the medium term. US reflation dynamics are gaining broader traction while the USD has joined the ranks of the top-tier ‘high yielders’ among G10 currencies. This should continue to provide support through much of H1 this year.”


07:02 US retail sales in December were weaker than expected - Natixis

Thomas Julien, Research Analyst at Natixis, notes that the US retail sales accelerated as expected in December, gaining 0.6% MoM, slightly below expectations.

Key Quotes

“The increase was largely driven by car and gasoline sales (as oil prices increased). Yet, the control group of retail sales (the portion the BEA is using to estimate GDP) surprised on the downside, increasing by a modest 0.2% MoM. All in all, consumption may slowdown slightly in Q4 2016 but the trend is still robust while job gains and accelerating wages should support spending in the near term.”  

“Retail sales rose by 0.6% MoM in December, slightly below consensus expectation and ours (+0.7% MoM). The acceleration in retail sales was mostly driven by car and gasoline sales. This was largely awaited as auto data were strong while oil prices increased during the period (retail sales data are reported in value). Yet, the control group sales surprised on the downside, gaining a modest 0.2% after 0.1% in November. This group is used by the BEA to estimate GDP and is more indicative of the trend of consumption.”    

“In short, report is slightly weaker than expected with a softening of consumption in Q4. As result, household expenditures will slowdown in the last quarter of 2016 but one should keep in mind that the trend is still fairly robust. In addition, looking forward, with still solid employment gains and rising wages we expect consumption to remain dynamic in the near term.”


07:02 Tumble in EUR/NOK volatility

EUR/NOK ATR(14) is at minimums across several time frames, from 30min to daily charts.

Volatility shrunk to levels not seen in several weeks of trading independently from trend direction. This signal augurs poorly for short-term traders because they indicate less direction for trend following and less volatility for mean reversion. It is advised to look for a catalyst and subsequent change in dynamics before entering EUR/NOK trades.

06:53 Yuan will fall to 7.26 per USD by Sept-end Danske Bank

Allan von Mehren, a strategist at Danske Bank A/S and the Yuan’s most accurate forecaster as ranked by Bloomberg, said in its latest report that he expects the Yuan to fall sharp to 7.26 per dollar by the end of September.

Key Quotes via Bloomberg:

“I am more bearish on the economy to slow down than the market, and I think the currency is in a structural downward trend because of the structural headwinds”

“Fundamental pressures on the yuan are very much still in place”

“They can deal with high offshore rates for some time”

“The offshore rate as a weapon has proven quite effective”


06:44 NZD/USD Sellers regain control, slammed below 0.7100

The New Zealand dollar got battered by its American counterpart in the Asian trading this Monday, slamming NZD/USD to daily lows below 0.71 handle.  

Currently, the NZD/USD pair drops -0.50% to trade at 0.7094, hovering within a striking distance of daily lows struck at 0.7088. The NZD/USD pair remains heavily offered on the back of reduced demand for higher-yielding emerging market currencies, in response to higher US treasury yields, which in-turn boosts the greenback at the expense of the NZD.

Further, renewed concerns surrounding a Hard-Brexit landing ahead of the UK PM May’s speech on Brexit, also weighs on the majors amid increased demand for safe-havens such as the yen, gold etc.

Focus now shifts towards key economic releases lined up this week, with the NZ GDT price index, US CPI, China data dump to remain the main risk events that will have significant impact on the Kiwi.

NZD/USD Levels to consider

To the upside, the next resistance is located at 0.7134 (200-DMA), above which it could extend gains to 0.7150 (psychological levels) and from there to 0.7189 (daily R3). To the downside immediate support might be located at 0.7046 (10-DMA) and from there to at 0.7029 (50-DMA), below which 0.7000 (key support) would be tested.

 


06:37 UK: Sterling sacrificed on the altar of two red lines - SocGen

Analysts at Societe Generale note that the big Monday morning mover is the pound –again as UK PM May’s speech on Brexit is expected to show no wavering on the key elements of control over immigration and ‘freedom’ from the European Court of Justice.

Key Quotes

“It is virtually impossible to see how the UK can remain in the EU Single market under those conditions and it seems likely Mrs May will concede as much, while also sticking to a timetable of triggering Article 50 by March. Is there much that is new here, beyond confirmation that what everyone always suspected – Mrs May’s two ‘red lines’ are incompatible with membership of the Single Market? Although leaving the single market will be a substantial drag on economic growth in the coming years, the red lines matter more to the PM.”

“Confirmation is enough, of course, to justify another knee-jerk negative reaction by the pound and as the CFTC data show, the market isn’t anything like as short GBP as it was. But still, a significant move lower surely requires harder evidence of economic weakness. I doubt there’s enough here to get EURGBP through 0.90 or to get GBP/USD sustainably much below 1.20 on a lasting basis and if anything, Tuesday is more likely to see a short-covering bounce (from wherever we end up on Monday).”


06:33 USD longs pared back, GBP shorts added - ANZ

Research Team at ANZ lists down the CFTC positioning data for the week ending 10 January 2017.

Key Quotes

After two consecutive weeks of net buying, leveraged funds pared back their net long USD positions by USD0.4bn to USD28.8bn. Long USD positions remain elevated and are susceptible to further near-term reductions.”

USD selling was concentrated against the JPY. Funds reduced their net JPY short positions by USD2.1bn to USD5.8bn after two consecutive weeks of JPY selling. This is in line with the yen’s price action during the week. EUR and CAD were the only other major currencies that saw net buying against the USD, though for modest amounts. Funds lowered their net EUR and CAD shorts by USD0.1bn each.”

Leveraged funds stayed bearish on the GBP, adding USD1.1bn to take their overall net short GBP positions to USD4.7bn, the highest in eight weeks. Funds also added USD0.2bn to take their net overall net CHF shorts to USD2.3bn.”

Despite their strong price action, leveraged funds continued to pare back their AUD and NZD positions during the week. Funds added USD0.4bn to take their net short AUD position to USD1.3bn. This is the fourth straight week of AUD selling. Funds also reduced their net long NZD position by USD0.2bn to USD0.9bn, the lowest overall longs since May 2016.”

EM currencies were bought by leveraged funds, led by MXN – which saw net buying against the USD for the third consecutive week. Funds added USD0.2bn to their overall EM portfolio in the week.”

Net short positions in 10 year USTs continued to move higher as investors position for higher interest rates. Gold saw net buying for the first time in ten weeks. Net long crude oil positions were reduced for the second consecutive week.”


06:32 Tumble in EUR/NOK volatility

EUR/NOK ATR(14) is at minimums across several time frames, from 30min to daily charts.

Volatility shrunk to levels not seen in several weeks of trading independently from trend direction. This signal augurs poorly for short-term traders because they indicate less direction for trend following and less volatility for mean reversion. It is advised to look for a catalyst and subsequent change in dynamics before entering EUR/NOK trades.

06:32 Japan Tertiary Industry Index (MoM) meets expectations (0.2%) in November


06:22 IEA: Oil prices will be much more volatile in 2017- RTRS

Fatih Birol, executive director of the International Energy Agency (IEA), the Paris-based global energy watchdog, noted on Sunday that global oil prices will witness "much more volatility" in 2017, while adding that he sees market rebalancing in the first half of this year.

Key Quotes:

"I would expect that we will see a rebalancing of the markets within the first half of this year"

 "But what I want to say (is) that we are entering a period of much more volatility in the market ... the name of the game is volatility"

"I expect the U.S. shale oil will go back to increasing production this year"

"This year, if there are no major investments coming we may well see in a few years from now significant supply-demand gap with serious implications on the market" 


06:11 UK Press: Trump says Brexit will end up being a great thing

The UK Times reported comments from the US president-elect Trump, via Reuters, as he spoke on Brexit in an interview held over the weekend.

Key Headlines:

Brexit will "end up being a great thing"

Britons voted for Brexit because the UK wanted its own identity

"We're gonna work very hard to get it done quickly and done properly. good for both sides"

Will invite UK PM May to visit him "right after" he gets into the White House

Other countries would follow Britain's lead in leaving the European union

Will agree a nuclear weapons ­reduction deal with president Putin of Russia in return for lifting us sanctions

Russia's intervention in Syria has been "a very bad thing" that led to a "terrible ­humanitarian situation"

Looking ­forward to visiting Britain, makes positive comments about Queen Elizabeth

Urges Britain to veto any new UN Security Council resolution critical of Israel

He will appoint Jared Kushner, his son-in-law, to broker a Middle East peace deal


06:01 EUR/USD: Unperturbed by cross-driven strength as T-yields rise

The selling pressure behind the EUR/USD pair intensifies as we head into the late-Asian trades, knocking-off the rate closer towards 1.06 handle.

EUR/USD: DXY tracks Treasury yields higher

Currently, the spot now drops -0.34% to fresh session lows of 1.0606, eyeing for a test of 10-DMA located at 1.0587. EUR/USD remains heavily sold-off and fails to benefit from cross-driven strength, with EUR/GBP rallying over 1% on Hard-Brexit backed broad GBP weakness.

The major remains under pressure as investors prefer to hold the reserve currency – the USD in times of uncertainty and market panic, now re-enforced by Hard-Brexit fears. While higher treasury yields also underpin the sentiment around the buck, therefore, weighing down on EUR/USD. The USD index rises +0.37% to 101.54 levels.

Markets now look forward to the trade balance data from the Euroland amid holiday-thinned trading, as the US markets remain closed in observance of Martin Luther King Day.

EUR/USD Technical Levels

In terms of technicals, the pair finds the immediate resistance 1.0650 (psychological levels). A break beyond the last, doors will open for a test of 1.0687 (5-week tops) and from there to 1.0700 (zero figure). On the flip side, the immediate support is placed at 1.0600 (zero figure) below which 1.0587 (10-DMA) and 1.0553 (50-DMA) could be tested.

 


05:59 EUR/GBP gaps higher, sits above 0.88 handle

EUR/GBP cross clocked a high of 0.8851 in early Asia as GBP was hammered on heightened fears of hard Brexit. 

Major trend line hurdle is history

The descending trend line drawn from Oct 11 high and Nov 2 high offered a strong resistance on Friday, thus limiting the upside at 0.8768 levels. However, the gap up open today at 0.8836 means the trend line hurdle is now a support. 

The currency was last seen trading around 0.8820 levels. Sterling is attempting a recovery, although it could be short lived if fresh offers hit the GBP pairs in early Europe. 

EUR/GBP Technical Levels

A break below 0.88 (zero figure) could set the pair on track towards 0.8768 (Fri’s high), under which the losses could be extended to 0.8719 (5-DMA). On the higher side, breach of the resistance at 0.8859 (Nov 3 low) would expose hurdle at 0.89 (zero figure). A violation there could see the pair test supply around 0.90 handle. 


 


05:43 ESMs Regling sees Brexit as a bigger problem for UK, markets agree

European Stability Mechanism MD, Klaus Regling sees Brexit as a bigger problem for UK than the rest of Europe.

Financial markets seem to agree with Regling, which is evident from the early Asian session sell-off in Cable and a lackluster action in the EUR/USD pair.

Regling added further that the rise of populism in Europe and US is not good sign for global trade and cross-border cooperation.


05:27 GBP/USD - holds 1.20 for how long?

GBP/USD gapped lower at 1.20 in response to news reports suggesting that UK PM Theresa May is all set to call for ‘hard Brexit’ on Tuesday.

A recovery attempt quickly ran out of steam at 1.2054 following which the spot fell back to 1.2020 levels.

Bulls need to defend 1.20

The area between 1.20 and 1.21 acted as a strong support zone in the final quarter of 2016. Hence, the bulls need to defend 1.20 else sell-off could gather pace. Moreover, Theresa May is scheduled to speak on Tuesday, which means there is ample scope for bears to attack the key psychological mark of 1.20.

The pain may not stop tomorrow following May’s speech. This is because, May has also promised to trigger article 50 by end March.

Overall, the odds of a bearish break below 1.20 are high. Nevertheless, a minor probability of a rebound/recovery exists so long as the bulls are able to defend 1.20 levels.

GBP/USD Technical Levels

Below 1.20, there is nothing on the technical charts that could act as support. The flash crash low is debatable. Fib extension drawn from 2007 high - 2009 low - 2015 high shows a support comes around 1.1340 (76.4% extension). On the other hand, a rebound from 1.20 followed by a daily close above 1.21 could yield a technical recovery to 1.22 (Dec low). 

 


05:19 Net short GBP positions highest in 8 weeks ANZ

Analysts at ANZ expressed their take on the latest CFTC commitment of traders report published last Friday.

Key Quotes:

“Leveraged funds stayed bearish on the GBP”

“Adding USD1.1bn to take their overall net short GBP positions to USD4.7bn”

“The highest in eight weeks”


05:11 Risk-off grips Asia amid Hard-Brexit concerns

The Asian markets opened the week on a weaker note, with most major indices down in the red zone, as investors move away from risky assets in wake renewed risk-aversion wave, triggered by re-emergence of Hard-Brexit fears.

The Japanese stocks tumbled over 1% after increased flight to safety pushed the yen higher across the board, weighing heavily on exporters’ stocks. While a sell-off in the shares of Japanese airbag maker Takata, also dragged the index lower. The shares tumbled more than 8%. Meanwhile, the USD/JPY pair drops -0.40% to trade just ahead of 114 handle.

While the Australian equities bucked the trend and traded with moderate gains, with higher gold prices boosting the sentiment around gold miners. Also, upbeat MI inflation gauge added to the positive tone seen around the Aussie stocks.

The Japanese benchmark, the Nikkei 225 index slumps -1.07% to 19,080. The Australian benchmark, ASX 200 index advances +0.46% to 5,750 points. Mainland Chinese markets extend losses, with both Shanghai composite and Shenzhen’s CSI 300 index tumbling nearly 1%. Hong Kong's Hang Seng drops -0.90% to 22,730. 


05:04 EUR/SEK is oversold on several parameters

The standout technical signal on a EUR/SEK 4hr chart is a plunge of the RSI below its 25% threshold.

At the same time, negatively aligned 50- and 200-period moving averages point at a continued EUR/SEK depreciation, with recent declines locking the RSI below the 50% mark. Worth mention is the 70% level which hasn't been explored for a while on the 4hr time frame.

Should the EUR/SEK be unable to wave any additional bearish impulses, the mentioned momentum readings raise the odds of a minor squeeze back upwards.

05:03 EUR/SEK is oversold on several parameters

The standout technical signal on a EUR/SEK 4hr chart is a plunge of the RSI below its 25% threshold.

At the same time, negatively aligned 50- and 200-period moving averages point at a continued EUR/SEK depreciation, with recent declines locking the RSI below the 50% mark. Worth mention is the 70% level which hasn't been explored for a while on the 4hr time frame.

Should the EUR/SEK be unable to wave any additional bearish impulses, the mentioned momentum readings raise the odds of a minor squeeze back upwards.

05:02 USD/CHF gaining upside traction

USD/CHF declines over recent weeks appear to have been temporarily stalled in the face of a bullish development.

The MACD line is tracing higher lows, when compared to recent sessions. Meanwhile, the meandering of the price structure is carving lower lows, which should give strong indication that we have seen the bottom on this pair for the time being.

04:53 USD/JPY loses altitude, finds support around 114.00 handle

The Dollar-Yen pair is extending the five-day losing streak in Asia as the heightened fears of hard Brexit is weighing over the GBP/JPY cross.

The spot dropped to a session low of 113.97 before recovering slightly to 114.10 levels.

Trapped between two 23.6% Fib retracement levels

The pair looks trapped between 113.99 (23.6% fib retracement of 2011 low - 2015 high) and 114.54 (23.6% fib retracement of Nov 9 low - Dec 15 high).

The Sunday Times reported over the weekend that UK Theresa May is set to announce on Tuesday that the government is prepared for ‘Hard Brexit’. That led to a broad based sell-off in Sterling. The resulting drop in the GBP/JPY cross is hurting the USD/JPY pair.

Similar action could be seen once the European desks come online later today.

USD/JPY Technical Levels

A break below 113.99 (23.6% fib retracement) would open doors for an extension of the sell-off to 113.42 (Dec 7 low) and 113.00 (zero figure). On the other hand, a break above 114.54 (23.6% fib) would expose 115.07 (Jan 6 low), above which a major hurdle is seen at 115.45 (Jan 13 high).

 


04:51 PM Maduro: Venezuela will circulate new proposal to support oil prices - RTRS

Venezuelan President Nicolas Maduro speaking in an interview on Sunday, via Reuters, noted that Venezuela will announce a new proposal to stabilize oil prices.

Key Quotes:

"Venezuela, as of next week, will circulate a letter with a new proposal, a new formula for the stability of real and just prices so that it can be studied and debated by all the governments that have signed this deal"


04:42 AUD/USD: Bears guarding 200-DMA barrier

Despite upbeat Australian inflation figures, the bears continue to keep control on the Australian dollar, keeping any recovery attempt in AUD/USD capped near 0.75 handle.

AUD/USD comes down to test 5-DMA

Currently, the AUD/USD pair trades -0.25% lower at 0.7482, flirting with daily lows struck at 0.7480. The Aussie remains on the offers amid widespread risk-aversion across the financial markets, as sentiment remains unfavorable towards higher-yielding currencies amid resurfacing Hard-Brexit worries, following the UK PM May’s comments delivered over the weekend.

While upbeat Aus MI inflation data had little impact on the spot, as broad based USD strength and risk trends remain the main drivers for the major. Looking ahead, we have an action-packed week, with US inflation data, Fed speaks and Aus employment data to emerge key determinants for next direction on the AUD/USD pair.

AUD/USD Levels to watch   

The pair finds the immediate resistance at 0.7501/05 (200-DMA/ daily high) above which gains could be extended to the next hurdle located 0.7550 (psychological levels) and 0.7600 (round figure). On the flip side, the immediate support located 0.7470 (daily S2). Selling pressure is likely to intensify below the last, dragging the Aussie to 0.7407 (10-DMA) and below that 0.7357 (50-DMA).

 


04:38 Gold revisits 38.2% Fib hurdle in Asia

Pound sell-off on hard Brexit fears triggered risk aversion, leading to an uptick in gold prices. The metal rose to $1204.76 (38.2% retracement of Nov 9 high - Dec 15 low) in Asia.

Trades above $1200/Oz

At the time of writing, the metal was trading around $1202/Oz levels. Prices had dipped to a low of $1187.50 on Friday before the disappointing US retail sales data pushed prices back to $1200 mark.

Moreover, the retail sales number showed that Trump optimism (sentiment) is not really leading to strength in the hard data (consumption).

The metal remains at the mercy of the Brexit related news flow today.  Another round of GBP selling and gold strength cannot be ruled out in early Europe. The metal could perform, especially well in Sterling terms.

Gold Technical Levels

A daily close above $1204.76 (38.2% fib) would open the doors to $1214 (Nov 23 high). On the other hand, a failure to take out $1204.76 followed by a break below the psychological mark of $1200 would expose support at $1181.50 (50-DMA).   


04:16 Trumps silence on Yen is surprising Japans Yamasaki

Trump spent much of the campaign blaming China for economic woes faced by US and has vowed to name China a currency manipulator.

However, the President Elect has remained silent on the Japanese Yen. Tatsuo Yamasaki, a former vice finance minister for international affairs finds Trump’s silence amazing. Yamasaki believes Trump’s administration could boost Japanese economy.


04:14 BOJs Kuroda: Will maintain QQE with YCC for as long as needed to achieve 2% price target

Bank of Japan (BOJ) Governor Kuroda was on the wires last hours, via Reuters, commenting on the bank’s monetary policy program.

Key Headlines:

Japan's economy continues to recover moderately as a trend

Japan's economy expected to expand moderately as a trend

Japan consumer inflation likely to be slightly negative or around zero pct for time being

Japan's financial system maintaining stability

BOJ will maintain QQE with yield curve control (YCC) for as long as needed to achieve 2 pct inflation in stable manner

BOJ will adjust monetary policy as needed to maintain economy's momentum to achieve its price target

BOJ will continue expanding monetary base until core CPI stably exceeds 2 pct


03:56 Is AUD/JPY pointing to Brexit-led risk-off?

AUD/JPY, a risk barometer in Asia, is trading 0.38% lower around 85.60 levels. The drop in the currency pair is usually taken as a negative sign for the risk assets given the AUD’s close association with China and JPY’s status as a safe haven currency.

Risk-off ahead of a merely a correction in AUD/JPY?

The sharp rally in the AUD/USD over the past two weeks has left the currency overbought on the intraday and daily time frame charts. Consequently, the drop in the AUD/JPY cross could pe partly blamed to a technical correction.

Meanwhile, the heightened odds of hard Brexit and the resulting losses in the S&P 500 futures also strengthened the bid tone around Yen. Thus, the drop in the AUD/JPY cross could also be an early sign the risk assets could remain under pressure during the day ahead.

AUD/JPY Technical Levels

A break below 85.38 (5-DMA) would expose 85.00 (zero figure), under which the losses could be extended to 84.65 (Dec 19 low). On the higher side, a convincing break above 86.28 (Fri’s high) would signal continuation the rally from Dec 29 low of 83.74. Major resistance is seen at 86.62 (Dec 12 high) and 0.87 (zero figure).


03:52 Data previewfor US economy: industrial production to rebound - Nomura

Analysts at Nomura noted the forthcoming US data and explained that they are expecting industrial production to rebound in December and steady advances in consumer prices. 

Key Quotes:

Empire State Survey (Tuesday): The headline index from this survey jumped strongly to 9.0 in December from 1.5 in November. Forward-looking indicators in the December survey suggest that the surge in optimism may continue in the near term. Other business surveys are in line with this trend. The ISM manufacturing index improved to 54.7 in December after an elevated reading in November. However, hard data on real economic activity were mixed and did not improve as strongly as business and consumer sentiment. As such, we expect the headline index to decline slightly to 7.0 in January.

Industrial production (Wednesday): In November, IP recorded a 0.4% m-o-m decline. However, incoming data suggest that industrial output likely rebounded in December. Output from the manufacturing sector (ex-autos) likely improved as payrolls in this sector posted moderate gains and steady average hours worked. In the mining sector, we expect output to have improved as crude oil production and oil and gas rig count grew modestly from the previous month. Moreover, considering increased demand for heating we think utility output rose in December. Last, vehicle and parts production likely increased over the month. Altogether, we forecast IP rose by 0.6% m-o-m in December. 

NAHB housing index (Wednesday): The NAHB housing market index jumped to 70 in December from 63 in November, implying a strong improvement in homebuilders’ sentiment. Incoming data suggest that this optimism may have continued into 2017. The index of the traffic of prospective buyers registered 53 in December, up 6 percentage points (pp) from the prior month, suggesting that homebuilders anticipated better demand in coming months. In addition, housing construction activity appears to have been steady as employment in this sector grew steadily over the month. All in all, we forecast homebuilders’ sentiment to remain elevated at 70 in January.
CPI (Wednesday): We believe that non-gasoline energy prices likely rose in December but at a slower pace than gasoline prices, which increased modestly by 4.6% on a seasonally adjusted basis in the month. As such, we expect a 2.3% m-o-m gain in the aggregate energy prices of the CPI. 

On food prices, it appears that both food-away-from home and food-at-home prices increased at a solid pace of around 0.2% m-o-m. Although food-at-home prices (food prices at grocery and supermarket stores) had declined for seven straight months until November, the PPI’s price index for finished consumer goods showed a back-to-back increase in December, suggesting some stabilization of food-at-home prices. As for the food-away-from-home prices (restaurant menu prices), the other subcomponent of food prices, the recent tightening of labor markets for restaurant industries points to a solid increase in this metric in December. Altogether, our forecast for aggregate food prices is a 0.2% m-o-m increase. 

Excluding food and energy prices, we expect core CPI rose by 0.2% (0.215%) m-o-m in December, a slight acceleration from 0.151% in November. If realized, this would represent 2.2% y-o-y growth, a 0.1pp increase from 2.1% in November. Drilling down, core goods prices likely fell again in December given imported consumer goods prices fell relatively sharply in the month. However, firming core service prices likely offset the softness in core good prices. 

Among core service prices, we expect airline fares to have jumped strongly in the month. Based on ticket price data, air fares appeared to have increased by about 3.0% m-o-m on a non-seasonally adjusted basis. Yet, the seasonal fluctuation in air fares in November and December suggests that seasonal adjustment should amplify the month-on-month increase. 

Considering the impact from seasonal adjustment, we expect a strong 8.8% m-o-m rise in air fares, adding 7bp to our core CPI inflation forecast. Excluding airline fares, core inflation would have been little changed. Combining our expectations for non-core and core components, our forecast for headline CPI inflation is 0.4% (0.361%) m-o-m, or 2.2% y-o-y. As for CPI NSA, we expect 241.674. 

Beige Book (Wednesday): In preparation for policy discussions at the January FOMC meeting, regional Feds will gather anecdotal information on economic activities. Although some survey-based data derived from qualitative responses from firms have picked up in recent months, hard data calculated from quantitative information did not show strong evidence that economic activities actually gained any significant momentum. In this regard, the next print of the Beige Book might be helpful in understanding how much the psychological effect of the election result contributed to the recent improvement in business sentiment. Moreover, it could provide some industry-level evidence for the recent acceleration in wage inflation reported by the monthly employment report. 

Initial jobless claims (Thursday): The latest reading of the initial jobless claims series was within the recent trend, in line with our view that labor market conditions remain tight and that involuntary lay-offs have been subdued. This series has been on a downtrend, although it has displayed some volatility around the holiday season. We would caution against reading too much into the recent fluctuation in this series. 

Housing starts (Thursday): Housing starts fell by 18.7% m-o-m to an annualized 1090k in November, driven by a sharp decline in multi-family housing starts. In December, we expect some positive payback in multi-family housing starts. However, incoming data suggest that single-family starts may have slowed. In particular, aggregate hours worked in residential construction fell 1.3% in December, implying some slowdown in home building activity. Altogether, we expect housing starts gain by 0.9% to an annualized 1100k in December. We forecast building permits to see 2.3% growth to an annualized rate of 1240k in December. 

Philly Fed Survey (Thursday): The Philly Fed index jumped strongly to 19.7 in December, which was revised downwards from 21.5 in annual revisions. The new orders index was elevated at 14.9 and the unfilled orders index was up 0.3pp to 3.6, suggesting that survey respondents had an optimistic near-term outlook. In contrast, incoming data on actual economic activity have not picked up strongly, suggesting that it may be possible that the slow improvement in real data could have affected post-election optimism. For this reason, we expect that the Philly Fed index did not improve further and forecast a print of 16.0 for January. 


03:40 Oil technicals warn of downside risk - BBH

Analysts at Brown Brotehrs Harriman offered recap of the action in the oil.

Key Quotes:

"The February light sweet crude oil futures contract snapped a four-week advance with a 2.5% drop, despite reports suggesting Saudi Arabia has cut more output than it promised.   Price snapped back quickly from a push below $51 a barrel, and the lowest level since the end of November.  The technical indicators warn of near-term downside risk, but as it approaches the bottom of the range, look for buying to reemerge.

A move above $53.50 improves the technical tone."


03:34 Outlook for AUD/USD - Westpac

Analysts at Westpac offered a market outlook for AUD/USD.

Key Quotes:

AUD/USD 1 day: The Aussie faces plenty of congestion just above 0.7500, including the 100 and 200 day moving averages. But overall it looks resilient, with initial scope for 0.7530/40. The US holiday should tighten ranges to start the week but our overall bias is moderately bullish.

AUD/USD 1-3 month: Below 0.7200. The US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead. The Fed’s assertive tightening projections plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data should improve in Q4 and Q1, but these forces are subservient to the US dollar’s trend. There’s also the issue of Australia’s AAA rating, seen at risk. (23 Dec).

 

 


03:31 NZD/USD: consolidating the impressive recent performance to mid 0.71 handle

NZD/USD is currently trading at 0.7115 with a high of 0.7151 and a low of 0.7096.

The week has started out with most of the attention on sterlings drop and the weekend news around a hard Brexit. Except for the dairy auction later this week, the calendar is light for the Kiwi and indeed the week will be centred around outside developments in Europe and the US with Trump's inauguration - However, the Kiwi is take up attention in the wake of a weaker greenback.

US economic outlook: risks remain significant - Nomura

NZD/USD levels

Dollar correction over? - BBH

NZD/USD has been one of the top performers for the end of last week, testing the resistance of the ascending 200 dma that is currently situated at 0.7128. 0.7150 is a key area of resistance while 0.7200 likely holds protection that if broken quickly brings in the early november highs, likely on a break of the 0.7240 high of 14 Dec as noted by analysts at Westpac.

NZD/USD 1-3 month: 

Ultimately, the analysts at Westpac have a more bearish outlook to 0.6800. "The US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead. The Fed’s assertive tightening projections plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that, the NZ economy is strong and dairy prices have risen, but these forces are subservient to the US dollar’s trend. (21 Dec)."

 

 


03:28 GBP/JPY drops to two-month low

GBP/JPY dropped to two-month low of 137.01 in Asia on reports UK PM May, via her speech on Tuesday, is set to announce the government is prepared for hard Brexit.

Pound offered across the board

The British Pound was smacked across the board in early Asia. The sell-off is not surprising, given the heightened odds of hard Brexit. It was reported in the Sunday Times that Theresa May will finally lay her cards on the table and call for hard Brexit.

The resulting drop in the US index futures also strengthened the bid tone around the Japanese Yen.

GBP/JPY Technical Levels

The cross was last seen trading around 137.66 levels. A break above the immediate hurdle of 138.92 (Jan 12 low) would expose 139.35 (5-MA on 4-hr chart). A violation there could yield a rally to 140.00 (zero figure) levels. On the lower side, a breach of 137.01 (session low) would open the doors to 136.76 (Nov 16 high) and then to 136.00 (zero level).


03:23 PBOC sets USD/CNY at 6.8874 vs 6.8909

PBOC sets USD/CNY at 6.8874 vs 6.8909


03:08 USD/CNY projection: 6.8937 - Nomura

Analysts at Nomura offered their projections for the Yaun fix.

Key Quotes:

"Our model1 projects the fix to be 28 pips higher than the previous fix (6.8937 from 6.8909) and 63 pips lower than the previous official spot USD/CNY close of 6.9000.

The basket implied change is 72 pips lower than the previous official spot USD/CNY close (6.8928 from 6.9000)."


02:48 Wall Street wrap-up: Dow still aims for 20,000 - BBH

Analysts at Brown Brothers Harriman noted the close on Wall Street and day's performance in the benchmarks.

Key Quotes:

"The Dow Jones Industrials and the S&P 500 slipped lower last week, while the NASDAQ tacked on one percent.  Despite this and the fact that the Dow remains below the 20k psychological level, the underlying tone remains firm.  

With the S&P 500 less than 0.5% from its record, and Dow 20k still in view, there is no sign that equity investors are disturbed by the lack of detail on tax reform, infrastructure spending, and deregulation. Since the end of November, the S&P 500 have been trading in a saw tooth pattern; alternating weeks are advancing and declining.  

To extend the pattern, the S&P 500 needs to close higher next week   A break of the 2250  area would weaken the market's technical condition."


02:31 USD/JPY fragile in Tokyo despite greenback trying to make some traction

USD/JPY was a slight bid on the open of Tokyo with the greenback finding some initial traction vrs the 2017 sell-off.

US economic outlook: risks remain significant - Nomura

For today, the US is on holiday, but European markets will engaged in full and managing the downside risk in sterling that could be a supporting factor for both the yen and the greenback as safe havens. Focus elsewhere remains with Trump's inauguration and the yield premium between Japan and the US with the spread narrowing in recent sessions as US yields drop on the back of markets reconsidering the Trump reflation trade at the start of the year.  For today, we have a mixed start in Asian equities following last week's varied closing on Wall Street.

Dollar correction over? - BBH

USD/JPY levels

The real downside risk to USD/JPY is a break below 113.75/80 while analysts at Brown Brothers Harriman suggested  a move above JPY115.60 could signal a move in the JPY116.20-JPY116.80 band. 

The slightly more optimistic bears, such as analysts at Commerzbank explained that they are unable to rule out a deeper retracement to the 111.98 area at this stage. "This is the 38.2% retracements of the move up from November. However the market continues to indicate that this is an ‘a-b-c’ correction only and the market should hold down here and recover."

 


02:02 Australia TD Securities Inflation (MoM) up to 0.5% in December from previous 0.1%


02:02 United Kingdom Rightmove House Price Index (MoM) climbed from previous -2.1% to 0.4% in December


02:02 Australia TD Securities Inflation (YoY) up to 1.8% in December from previous 1.5%


02:02 United Kingdom Rightmove House Price Index (YoY) declined to 3.2% in December from previous 3.4%


01:56 AUD/USD bulls waiting to pounce again, testing 0.7500

AUD/USD is currently trading a fee pips shy of the 0.75 handle at 0.7496 with a session high of 0.7506 and a low of 0.7476.

Fitch: Australian banking sector on a negative outlook

With much of the attention elsewhere around the weekend's Brexit stories of a hard Brexit speech from PM May this week, AUD/USD is consolidated with a bullish bias at the start of the week, having rallied from below 0.7200 and around 0.7160 on the sell-off in the greenback in 2017 as market ponder as to whether Trump to the US economy means all that was first speculated.

Dollar correction over? - BBH

On the back of the dollar weakness, analysts at Brown Brothers Harriman noted that the Australian dollar rose 2.5% against the US dollar last week. "In fact, it rose every day last week and in eight of the past nine sessions. It the three-week advance, it has gained about 4.25%. On January 2, it traded down to almost $0.7165, and on January 12, it reached nearly $0.7520," explained the analysts, adding, "The high before the Fed's mid-December rate hike was $0.7525. The $0.7540 area corresponds to the 61.8% retracement of its losses since the US election."

US economic outlook: risks remain significant - Nomura

AUD/USD levels

The analysts at Brown Brother Harriman explained that the Australian dollar has not closed below its five-day moving average (~$0.7425) since January 2. "A loss of this area could be a preliminary sign that the upside correction is over. The Slow Stochastics look set to cross lower, and the MACDs appear to be peaking."

Meanwhile, analysts at Commerzbank suggested that, currently, the market will have to go sub 0.7380 to alleviate immediate upside pressure and trigger a slide back to the 0.7312/00 then 0.7161/64. "Above 0.7525 we would allow for the 0.7648 2013-2016 channel (where it should fail) . Even this move will remain within the realms of a correction only. We view AUD/USD as having topped longer term and maintain a bearish bias."


01:52 Japan Machinery Orders (YoY) registered at 10.4% above expectations (8.1%) in November


01:52 Japan Machinery Orders (MoM) below forecasts (-1.7%) in November: Actual (-5.1%)


01:52 Japan Domestic Corporate Goods Price Index (YoY) above expectations (-1.5%) in December: Actual (-1.2%)


01:52 Japan Domestic Corporate Goods Price Index (MoM) came in at 0.6%, above expectations (0.3%) in December


01:36 Fitch: Australian banking sector on a negative outlook

Fitch rating agency is out with a note, warning that Australian banks are now on a negative outlook from stable. Fitch observes that the worsened outlook reflects an increase in macroeconomic risks and pressure on profit growth.

Key headlines

Household debt is high & rising relative to disposable incomes, making borrowers sensitive to changes in the labour market and interest rates

The ongoing rise in household debt and house-price growth heightens the banking system's sensitivities to a sharp correction if labour market conditions and interest rates were to change

In addition, a worse-than-expected slowdown in China's growth would negatively impact Australia's economy given the countries' strong economic ties.

These scenarios - although not our base case - could jeopardise the banks' strong asset quality and profitability, and weaken capitalisation

A prolonged global funding market disruption could place significant pressure on the banks' balance sheets despite the improvements in liquidity.


01:32 China should allow yuan to float freely - China Securities Journal

China's Securities Journal notes that China should allow the yuan to float freely, Bloomberg reports. The headlines has caused USD/CNH to spike ahead of the open of markets in China, last trading at 6.8650 session highs. 


01:29 US economic outlook: risks remain significant - Nomura

Analysts at Nomura offered an analyses on the US economy.

"The Trump Stimulus: We expect better growth starting in 2017 owing to the strong likelihood of fiscal stimulus. But new trade and immigration policies could hurt growth. 

Activity: In the wake of the US election, we expect the Republican-led Congress and the Trump administration to support a large fiscal stimulus. That stimulus is likely to include sizable tax cuts for businesses and individuals that will likely be passed sometime in late summer/early fall. We also expect slightly higher federal spending on defense and infrastructure. By contrast, two sets of less conventional policies—trade reform and stricter immigration policy—have the potential to restrict growth. The first will likely place increased restrictions on trade, lifting import prices (feeding higher inflation) which could incite retaliatory actions by other countries (hurting exporters). The second set will restrict the inflow of new immigrants and increase the outflow of existing immigrants. This could have a notable effect on labor force growth, causing a notable deceleration in total economic growth. At this point great uncertainty clouds the outlook for policy. But our preliminary assessment suggests that proposed tax cuts and federal spending should boost growth in late 2017 and into 2018, but then negative effects of restrictive trade and immigration policy start to take over and reduce growth in late 2018 and beyond. 

Inflation: With oil prices trending higher since Q1 2016 we expect inflation to move higher this year. We expect core CPI inflation to remain around 2%, while core PCE inflation should trend gradually higher. With steadily increasing pressure induced by fiscal policy and trade policy, core inflation should grow somewhat faster in 2018 than previously expected. 

Policy: After years of the Federal Reserve being “the only game in town,” fiscal support is coming. The Fed will likely be more aggressive in response to major fiscal stimulus as the economy is close to full employment. We forecast that the Fed will conduct two hikes in 2017 and three in 2018. 

Risks: There remains significant uncertainty surrounding our forecast as there is little concrete information on which fiscal policies will be enacted. It could take many months for that uncertainty to clear. Also, geopolitical uncertainty, slower global growth, the strong dollar, and tight financial conditions remain key risks to our outlook."


01:20 GBP/JPY: bears remain in control below bearish-Brexit-opening gap

GBP/JPY remains on the back foot after an avalanche that the bears triggered at the start of the week ensued post the weekend news and fears regarding what a hard Brexit would mean for the economy and ultimately the pound sterling.

GBP/USD start of week hard Brexit talk volatility, back on the 1.20 handle

Safe havens run to the Yen usually and GBP/JPY has felt that in the sell-off of the pound across the board. GBP/JPY went from 139.60 down to 137.03 in an opening bearish gap while the pound has managed to recover back above the 1.20 handle vrs the greenback after reaching lows at 1.1989, some way of the flash crash low a cent lower. The greenback is still feeling the reversal of the Trump reflation trade and USD/JPY is testing below the 115 handle again after bouncing from the 2017 lows of 113. 74.

GBP/JPY levels

GBP/JPY has broken below the 200 dma at 138.29 on this move and the 1st Sep 2016 highs of 138.81. 136.27 and 2th Nov lows guard 134.89 28th Aug and 10th Nov highs. 140.00 remains the key psychological level to the upside ahead of 141.50.


00:27 New Zealand Food Price Index (MoM): -0.8% (November) vs previous -0.1%


00:26 Trump s US dollar, implications for China and Mexico - Rabobank

Since the election of Donald Trump as US President both CNY and MXN have weakened vs. USD.

Key Quotes:

"However, the former has declined just a little while the latter has collapsed.

Given Mexico’s vast exposure to the US economy relative to China’s that makes sense.

However, China would also be vulnerable to US trade barriers given the only thing preventing its FX reserves from declining even faster is the trade surplus it runs.

Overall, it still seems likely to us that over the course of 2017 China will opt to let CNY weaken.

On that basis, MXN’s underperformance relative to CNY may be about to change."


00:23 GBP/USD start of week hard Brexit talk volatility, back on the 1.20 handle

GBP/USD is back above the psychological 1.2000 after a bearish opening gap that took the pound down over 200 pips vs the greenback at the start of a week when markets are awaiting PM to make a keynote speech regarding plans for Brexit.

The news over the weekend has hyped up the event to be a hard Brexit rhetoric which has investors scrambling for short sterling positions. The pound made a low of 1.1989, a good way off the flash crash recorded lows of $1.1841 when the pound crashed in the same time zone when it dropped more than 6 percent in the space of two minutes on Oct. 7. Meanwhile, the price still has some way to go to close the bearish gap to 1.2187.

EUR/GBP bulls remain in charge on bullish hard-Brexit opening gap

GBP/USD levels

Previously, analysts at Commerzbank explained that failure 1.2085 was a major level, thus should the price remain below here, the scope is for a continuation of the downside where the analysts marked out 1.1775 and then 1.1481 the recent spike low as key downside targets.

"Intraday rallies are indicated towards 1.2200, where they should start to struggle. Long term trend (1-3 months): Made an interim low at 1.1938 below which lies the 1.1855 May 1985 low."

 

 


00:13 EUR/GBP bulls remain in charge on bullish hard-Brexit opening gap

EUR/GBP has rallied hard on the back of the Brexit weekend news just a couple of days away from May speaking this week where she is expected to talk of hard Brexit conditions.

The three-month resistance line at 0.8772 was broken last week and has just broken above 0.8778 level that now opens scope toward 0.9000. If indeed the Telegraph has reported accurately in respect to what to expect from May's speech this week, the pound could be in for a long period on the back-foot until heads turn to the European political uncertainties and potential banking crisis while the dollar could start to attract safe-haven flows again regardless of Trump's fiscal policies or the Federal Reserve and US economy performance - if it is more of a dollar story the cross might have a hard time moving in one direction. Meanwhile cable is back above the 1.2000 handle on profit taking.

Dollar correction over? - BBH

EUR/GBP levels

EUR/GBP has broken key technical levels to the upside over the course of the last several trading sessions and 0.9000 is in focus while holding above the 0.88 handle. 0.8780 to the downside will close the bullish opening gap and guards the 0.87 round figure and 0.8664 (29th Dec spike highs). "We maintain a longer term negative bias - we look for a retest of the 200 day ma at 0.8467 and the recent low at 0.8304. "Failure here will trigger another leg lower to the 0.8170 50% retracement."

 


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