The UK PM Theresa May said in a statement on Thursday, Britain and France will agree on Thursday to deepen security cooperation, as she hopes that this move will win her goodwill in Brexit talks, Reuters reports.
“Today’s summit will underline that we remain committed to defending our people and upholding our values as liberal democracies in the face of any threat, whether at home or abroad.”
“And while this summit takes place as the UK prepares to leave the EU, this does not mean that the UK is leaving Europe ... A strong relationship between our two countries is in the UK, France and Europe’s interests, both now and into the future.”
The US Dollar struggled to build on overnight strong rebound and held with modest losses in a rather subdued trading action on Thursday.
On Wednesday, the greenback staged a solid rebound from fresh 3-year lows and was further supported by better-than-expected US industrial production/capacity utilization data. The recovery move got an additional boost after the Federal Reserve's Beige Book reaffirmed that the central bank was still on track for three rate hikes in 2018.
The up-move, however, lacked any strong follow-through traction and was now capped by a stronger Euro, which managed to recover part of previous session's sharp retracement from three-year tops.
Meanwhile, surging US Treasury bond yields, with 2-yr yields breaking out to the highest level since 2008 and 10-yr yields holding just under 2.60%, March 2017 highs, helped limit deeper retracement, at least for the time being.
There isn't anything notable data due for release during the European trading session and hence, the lackluster trading action is more likely to get extended until the US economic releases.
Today's US economic docket features the release of housing market data, which along with Philly Fed Manufacturing Index and initial weekly jobless claims should help traders grab some short-term trading opportunities.
- Buy the dips?
- Negative UK stocks, oil prices weigh.
- Awaits US jobless claims, Philly Fed manufacturing index.
The GBP/USD pair extends its bearish consolidative mode into Europe, moving back and forth in a familiar range between 1.3800 and 1.3850 levels amid a lack of fresh catalysts.
GBP/USD supported at 1.3800
The spot returned to the red zone after its recovery from just ahead of the 1.38 handle faltered near the 1.3850 barrier, largely on the back of a renewed uptick seen in the US Treasury yields, which usually dull the attractiveness of the GBP as an alternative higher-yielding asset.
More so, a minor bounce seen in the US dollar versus its main competitors also capped the recovery seen in the major. The USD index is seen reversing a dip to 90.48 levels (session lows) to now trade at 90.56, still down -0.10% on the day. Further, negative oil prices weigh down on the resource-heavy London stocks, collaborating to the downbeat tone seen in Cable.
Also, looming Brexit concerns amid speculation over a second Brexit referendum gathering pace keeps any recovery short-lived. Looking ahead, “in absence of any fresh macroeconomic data from the UK, traders would take cues from the US economic releases - housing market data, Philly Fed Manufacturing Index and weekly initial jobless claims,” Haresh Menghani, Analyst at FXStreet, writes.
GBP/USD Preferred Strategy
Jim Langlands at FX Charts, noted “The momentum indicators generally look positive but Cable remains very headline driven so caution is warranted. Buying dips seem to be the theme though, with an SL placed back below 1.3800.”
Oil benchmarks are down slightly, possibly due to fears that rising shale output would negate the impact of OPEC-led output cuts.
As of writing, Brent is down 21 cents or 0.30 percent at $69.20/barrel, while WTI is changing hands at $63.89/barrel.
The shale oil output could rise by 1.8 million barrels per day (bpd) over the next year, matching the volume of production cuts implemented by the OPEC, Russia and other major oil-producing nations, said the Energy Information Administration (EIA). Further, shale output is seen rising to 6.438 million barrels per day in January; up 24,000 bpd from December.
The fears of rising shale output seem to have taken a wind out of oil bulls. Also, there is widespread belief that OPEC fears the major central banks would counter the oil-led rise in inflation by quickening the pace of policy tightening. Thus, the Cartel is likely to talk down oil prices.
That said, losses could be restricted today as the militant group Niger Delta Avengers has threatened to launch attacks on Nigeria’s oil sector in the next few days.
• USD struggles to build on overnight strong rebound.
• Surging US bond yields fail to lend any support.
• US data might provide some trading opportunities.
Having posted a session high level of 0.9666, the USD/CHF pair came under some selling pressure and eroded part of previous session's strong recovery gains.
Despite a strong follow-through upsurge in the US Treasury bond yields, renewed US Dollar weakness was seen as one of the key factors weighing on the major through the early European session.
Even the prevalent positive trading sentiment around European equity markets, which tends to dent the Swiss Franc's safe-haven appeal did little to lend any support and assist the pair to build on overnight recovery move from 4-month lows.
With the USD price dynamics turning out to be an exclusive driver of the pair's momentum, traders now look forward to the US economic releases - housing market data, Philly Fed Manufacturing Index and the usual initial weekly jobless claims, for some fresh impetus.
Technical levels to watch
Currently trading around the 0.9635-30 region, testing session lows, a follow-through weakness has the potential to continue dragging the pair back towards the 0.9600 handle.
On the upside, sustained move back above 0.9655-60 area might lift the pair even beyond the 0.9700 handle towards its next hurdle near the 0.9720-30 region.
Reuters reports comments from an Iraqi Oil Official, as saying that Iraq and BP are likely to sign an agreement to boost production from Northern Kirkuk oilfields.
• A modest USD pull-back helps regain traction.
• Surging US bond yields likely to cap additional gains.
• US economic data might provide trading opportunities.
The EUR/USD pair built on its steady up-move through the early European session and has now jumped o fresh session tops, around the 1.2215 region.
A modest US Dollar retracement helped the pair to bounce off 1.2165 support, weekly lows, and recover part of previous session's sharp retracement slide from 3-year tops.
However, a fresh leg of upsurge in the US Treasury bond yields might now keep a lid on the pair's steady up-move. In fact, 2-yr yields broke out to the highest level since 2008 and 10-yr yields held just under 2.60%, March 2017 highs, which should underpin the greenback demand, at least for the time being.
There isn't any market moving data due from the EZ and hence, traders would look forward to the US economic docket, featuring the release of housing market data, Philly Fed Manufacturing Index and the usual weekly initial jobless claims, for some fresh trading impetus.
Technical levels to watch
Any subsequent up-move is likely to confront resistance near the 1.2230 area, above which the pair is likely to head back towards 1.2260-65 supply zone before darting back towards the 1.2300 handle.
On the downside, weakness back below the 1.2200 handle might continue to find some support near the 1.2165 region, which if broken might turn the pair vulnerable to slide back towards the 1.2100 round figure mark.
Will the bullish outside day reversal from 61.8 Fib support translate into long-term trend reversal in USD/JPY?
Commerzbank Analyst Karen Jones sees little scope for long-term trend bullish trend reversal and expects the rally to fail at 114.38/82 major resistance. Jones writes-
"Initial resistance lies at 111.73/112.05 (200 day ma). Above here lies the 113.64/75 December highs. There is a lot of resistance directly overhead – namely the 113.92 2015-2018 downtrend line. Above here sits the 114.38/82 major resistance, we continue to favour failure."
Failure at 114.38/82 would keep the long-term neutral to negative outlook intact. Also, a rise to 114.38/82 is easier said than done as spot would need to chew through multiple hurdles lined up at 111.73/112.05 (200 day ma) and 113.92 (2015-2018 downtrend line).
As of writing, the pair is trading at 111.15 - down 0.13 percent on the day. USD found bids in Asia but the positive follow-through to yesterday's bullish outside day candle ran into offers abov111.41 (38.2% Fib R of Jan. 8 high - Jan. 17 low).
Speaking at a joint conference by the International Monetary Fund and the Deutsche Bundesbank, in Frankfurt, German Buba President Jens Weidmann was noted saying that a marked reduction in German growth potential could translate into lower long-term interest rates.
• Indicators of labour market slack would suggest higher wage settlements
• Factors responsible for holding back wage growth are partly international
- Yesterday's doji signals indecision in the market.
- BOC warns of unknowns of the NAFTA’s renegotiation.
- Focus on T-yields and US dollar.
The Bank of Canada (BOC) raised rates to 1.25 percent yesterday as expected, but said the uncertainty surrounding NAFTA negotiations is weighing over forecasts. Thus, USD/CAD saw two-way business before ending largely unchanged on the day.
The resulting doji candle highlights indecision in the marketplace. As of writing, the pair is mildly around 1.2445. A positive close today would confirm the bullish doji reversal.
Moreover, the odds of a positive close are high, given the uptick in the treasury yields is lifting greenback higher across the board. The two-year Treasury yield, which mimics short-term rate hike bets, rose to 2.06 percent today; its highest level since August 2007.
An upbeat US data - weekly jobless claims, housing starts and building permits - may help USD score gains. Also, the bid tone around oil has weakened on fears the rising shale output could overshadow OPEC-led output cuts. Hence, CAD bulls may find it difficult to penetrate previous day's low of 1.2362.
USD/CAD Technical Levels
A break above 1-hour 200-MA of 1.2461 would open doors for 1.25 (zero levels) and 1.2531 (previous day's high). On the downside, breach of the session low of 1.2426 could send the pair down to 1.2397 (Jan. 16 low) and 1.2362 (previous day's low).
• A modest USD weakness helps regain traction.
• Mixed Chinese data fails to lend additional support.
• US data eyed for fresh trading impetus.
The NZD/USD pair traded with a mild positive bias for the second consecutive session but continued with its struggle to sustain above the 0.7300 mark.
The pair did move past the mentioned handle on Wednesday and refreshed 4-month tops but witnessed a sharp reversal during the NY trading session. The Fed's Beige Book reaffirmed that the central bank was still on track for three rate hikes in 2018 and drove flows away from higher-yielding currencies - like the Kiwi.
Some renewed US Dollar weakness did assist the pair to regain some traction on Thursday but the up-move lacked strong conviction and was capped by mixed Chinese macro data. A slightly better-than-expected Chinese fourth-quarter GDP print was largely offset by a big miss on retail sales data and did little to provide any fresh bullish impetus.
It would now be interesting to see if the 0.7300 handle continues to keep a lid on the pair or bulls are able to regain control as traders look forward to the US economic data from some fresh impetus.
Today's US economic docket features housing market data, which along with Philly Fed Manufacturing Index and the usual weekly initial jobless claims data might provide some short-term trading opportunities ahead of Friday's release of Business NZ Manufacturing Index.
Technical levels to watch
Immediate support is pegged near the 0.7245-35 region, below which the corrective slide could get extended towards the 0.7200 handle en-route 0.7155-50 strong horizontal support.
On the upside, a sustained move above the 0.7300 handle might continue to confront fresh supply near the 0.7330 region, which is followed by a strong resistance near mid-0.7300s.
China's National Bureau of Statistics (NBS) Director Ning Jizhe was out on the wires, offering more insights, following the release of the key Chinese economic releases.
The survey shows that unemployment rate in December is under 5%.
Urban unemployment rate in December is 4.98%.
The economy created more than 13 million new jobs in 2017.
Corporate debt ratio down by 0.5% y/y in 2017.
Carsten Brzeski, Chief Economist at ING, explains why he thinks the ECB will convey a dovish message when it meets next week to decide on its monetary policy program.
“At the start of the New Year, the ECB could currently feel as if it was in the middle of the set of a movie combining the scripts of “Groundhog Day” and “Aladdin”. Every time the ECB thinks that it bought some time and quiet, either macro developments or some ECB members’ statements (or sometimes both) undermine these plans and let the genie of speculations about policy changes out of the bottle.
While the ECB had actually tried to hush any exit speculation with the October decision for “lower for longer”, strong macro data, a general fear in financial markets that inflation is not dead and could return faster than anticipated as well as some ECB officials’ talks have recently again fueled new speculation about the future of QE.
For next week’s meeting, we expect Draghi to convey a rather dovish message, pointing to still weak inflationary pressure and also emphasizing the disinflationary impact from a stronger euro. The most important message to watch will be whether Draghi confirms the October statement that there will be no sudden end to QE.
We expect him to do so as this would be the only way to – at least – temporarily get the genie back in the bottle. It would also show Draghi’s magic of how to guide financial markets with very few words and without any action.”
- Gold hit a 6-day low of $1324.
- Two-year yield rose 9-year high on rising Fed rate hike bets.
Gold fell to a 6-day low of $1324 and the two-year Treasury yield clocked a 9-year high of 2.052 percent possibly due to rising Fed March rate hike bets.
Last Friday's stronger-than-expected US core CPI number pushed up the probability of a 25 basis point Fed rate hike in March to 70 percent. Meanwhile, the Fed Beige released yesterday reportedly left the doors wide open for a rate hike in March.
Hence, the two-year Treasury yield, which is sensitive to short-term interest rate expectations, rose to 2.052 percent; its highest level since August 2007. The zero-yielding yellow metal is likely feeling the heat of rising short-term yields.
That said, the downside could be capped by the lackluster action in the USD index. Also, as Reuters says, "investors will be watching Congress to see if it can put together a funding bill in time to avoid a US government shutdown" and that could restrict downside in the metal.
Gold Technical Levels
The metal has breached the ascending trend line (drawn from Dec. 12 low and Jan. 10 low). So, support levels at $1307.60 (Jan. 10 low) and $1300 stand exposed. On the higher side, a move above $1330 would shift risk in favor of a re-test of recent high of $1344.
- China Q4 GDP & industrial production beat estimates but
- Forward-looking retail sales missed estimates.
- AUD/USD could complete H&S in 1-hour chart.
China fourth-quarter GDP came in at 6.8% y/y, beating the estimate of 6.7%. Also, December industrial production bettered estimate of 6.02% y/y to print at 6.2%.
However, the Aussie is unimpressed, seemingly due to a big miss on the forward-looking retail sales number. Consumption, as represented by retail sales, rose 9.4% y/y, missing the estimate of 10.1% by a big margin.
Moreover, a weak retail sales data (dismal consumption) and an upbeat industrial production number indicate the economic rebalancing (from investment-driven growth to consumption-driven growth) is happening at a snail's speed.
The upbeat Aussie labor data released earlier today also failed to put a strong bid under the Aussie dollar. As of writing, the AUD/USD pair is trading at 1-hour 50-MA level of 0.7966. The 1-hour chart shows, the pair risks falling to 0.7942 - head and shoulders neckline on 1-hour.
AUD/USD Technical Levels
A 1-hour close below 0.7942 would confirm the head and shoulders breakdown and open doors for 0.79 (10-day MA) and 0.7875 (Jan. 5 high). On the higher side, a break above 0.7978 (76.4% Fib R of Sep-Dec drop) could yield a rally to 0.80 (psychological level) and 0.8037 (Sep. 21 high).
• Stalls overnight strong recovery move.
• Downside seems limited for the time being.
• US data eyed for fresh trading impetus.
The USD/JPY pair met with some fresh supply near mid-111.00s and touched session low in the last hour, albeit quickly recovered few pips thereafter.
The pair stalled its overnight strong recovery move from the 110.00 neighborhood, or 4-month lows, and was now being weighed down by some renewed US Dollar weakness. The greenback pared some of its gains, supported by upbeat manufacturing data and the Fed's Beige Book, and has been one of the key factors behind the pair's modest pull-back from weekly tops.
The downslide, however, seems cushioned amid the prevalent risk-on environment, which tends to weigh on the Japanese Yen's safe-haven appeal and helped the pair to bounce back to 111.30 level.
Adding to this, growing market conviction that the Fed will raise interest rates in March, reaffirmed by the ongoing upsurge in the US Treasury bond yields, might also contribute towards limiting any immediate downside, at least for the time being.
Traders now look forward to the US economic docket, featuring the release of housing market data, Philly Fed Manufacturing Index and the usual weekly initial jobless claims, for some fresh trading impetus.
Technical levels to watch
The 111.00 handle now seems to protect the immediate downside, which if broken could accelerate the slide back towards the 111.50-40 strong horizontal support. On the upside, momentum beyond mid-111.00s is likely to confront hurdle at the very important 200-day SMA, near the 111.70 region, above which the pair is likely to dart towards reclaiming the 112.00 handle.
China's YoY GDP figures for the fourth quarter of 2017 came at +6.8% vs +6.7% exp and 6.8% previous, with the QoQ reading for Q3 coming in at +1.6% vs +1.6% exp and +1.7% last.
With regard to retail sales YoY, the number was +9.4 vs 10.1% exp and 10.2% last, with industrial output YoY at 6.2% and 6.0% exp and 6.1% last. Meanwhile, urban investment YoY stood at +7.2% vs 7.1% expected and 7.2% last.
The mixed data had a limited impact on the Australian Dollar, with the AUD/USD pair maintaining the bid tone near 0.7975 levels while AUD/JPY keeps its range near 88.70.
Danske Bank’s analysts highlight the key market moving events/releases scheduled on Thursday.
“With no major euro area data releases on the calendar, today's highlight will be speeches by Bundesbank President Jens Weidmann and ECB's Benoit Coeuré at a conference on economic policy debates in Germany. With recent ECB attempts to talk down the EUR over the last days markets will look out for any hints regarding future ECB monetary policy.”
“In the US, the Philly Fed index for January is released. Consensus is for a decline to 24.0, in line with the observed drop in the earlier released Empire manufacturing index, but despite a possible moderation the index remains at a high level.”
FX option expiries for Jan 18 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
- EUR/USD: 1.2000 (EUR 2.4bn), 1.2100-05 (781m), 1.2180 (553m), 1.2200 (549m), 1.2220(767m), 1.2300 (627m)
- USD/JPY: 110.80 (USD 1.5bn), 111.00-05 (1.5bn), 112.50 (701m)
- USD/CAD: 1.2400 (USD 570m), 1.2460 (780m)
- NZD/USD: 0.7025 (NZD 2.0bn)
- EUR/GBP: 0.8650 (EUR 860m), 0.8765 (862m)
Karen Jones, Analyst at Commerzbank, notes that the GBP bulls may face exhaustion now, but GBP/USD remains poised for a move towards 1.4000.
“GBP/USD spiked higher yesterday, various intraday divergences suggest consolidation ahead of a move to psychological resistance at 1.40. The market stays immediately bid above the 1.3495 2 month uptrend. We would allow for a retracement to 1.3730/1.3600 ahead of further gains.“
“Below the 1.3495 would retarget the 1.3291 2014-17 uptrend.”
“The 2014-2017 downtrend line has been eroded to target the 1.3658/71 double Fibo. Above here would target 1.3836 the February 2016 low.”
- EUR/USD rebounds from 38.2% Fib, retakes 1.22 handle.
- Bearish outside day reversal to cap gains?
The EUR/USD found bids around 1.2167 (38.2% Fib R of Sep. 9 low-Sep. 17 high) and jumped to a high of 1.2209 levels, suggesting strong buying interesting on dips.
However, the spot is still at least 110 pips from the three-year high of 1.2323 set yesterday. Also, EUR/USD created a bearish outside day reversal yesterday. Commerzbank Analyst Karen Jones believes it could yield a temporary pullback to 1.2125-1.2075.
Also, the markets may have overpriced (run ahead of themselves) near-term policy tightening by the ECB. ING says President Draghi is likely to convey a rather dovish message, pointing to still weak inflationary pressure and also emphasizing the disinflationary impact from a stronger euro.
Most experts seem to agree that Draghi is likely to tame the hawks at the ECB. Thus, EUR bulls could have a tough time taking the pair back to a three-year high of 1.2323.
As of writing, the currency pair is trading at 1.2202 levels. Across the pond, weekly jobless claims and housing data (building permits and housing starts) are scheduled for release.
EUR/USD Technical Levels
A move above the upward sloping 5-day MA of 1.2222 would open doors for 1.2283 (Tuesday's doji candle high) and 1.23 (zero levels). On the downside, breach of support at 1.2167 (38.2% Fib R) could yield a pullback to 1.2119 (50% Fib R) and 1.2102 (10-day MA).
Horst Seehofer, a German Conservatives Party (CSU) politician, said in an interview in Bild, the Social Democrats (SPD) rejection of the coalition would be a catastrophe.
No further comments were reported so far.
Analysts at TDS offer a sneak peek at what to expect from today’s Chinese economic releases slated for release at 0700GMT.
“CNY Data deluge delayed until 3 pm Singapore time / 7 am London time. Q4 GDP expected to dip from 6.8% to 6.7% but with such strong PMIs for Dec risks lie towards another 6.8% print. H1 was 6.9% and perhaps H2 6.8%. Govt target was 6.5% or better so well and truly "achieved.”
Bitcoin, the biggest and most traded cryptocurrency, consolidates its overnight recovery in a $ 1000 range just ahead of the $ 11k mark, as the dust settles over the fears of the regulatory crackdown on the virtual currencies across Asia.
The spot lost almost gave up 50% of its value from record peaks of near $ 20000 levels and fell to four digits on Tuesday at $ 9,231 after speculations mounted that South Korea and Chinese regulators are boosting their crackdown efforts to curb the digital currencies trading.
All of its counterparts also reversing the recent sell-off, with Ethereum up +2.3%, Ripple rallying 20% while Bitcoin cash bounces 5% on the day, according to the CoinMarketCap data.
The crypto markets appear to have ignored the latest South Korean headline, citing that the South Korean regulator is said to consider shutting down all virtual currency exchanges. Most industry veterans view the sell-off as a good buying opportunity while adding that the traders could still continue to trading the digital currencies by switching onto exchanges in the countries that haven’t banned the cryptocurrencies.
Meanwhile, the cryptocurrency market cap also increased to $ 544 billion versus yesterday’s $503 billion. More than $200 billion has been wiped off the value of global cryptocurrencies over the last four trading sessions.
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