Market Brief
Americans preferred to increase saving in December as personal income rose more than expected (0.3%m/m verse 0.2% consensus), while personal spending stayed flat (0.1%m/m median forecast), confirming the poor retail sales figures released in January (Contraction of -0.1%m/m and -0.2% ex-auto). Are Americans battening down the hatches in anticipation for the worst, or are they just more cautious as a result of the last financial crisis? The Federal Reserve’s preferred measure of inflation, the PCE deflator, contracted 0.1%m/m in December, while the core gauge, which excludes the more volatile and seasonal food and energy prices, also missed forecast and came in flat versus +0.1%m/m median forecast. Finally, the US manufacturing sector shrank for a fourth straight month in January as foreign demand remained desperately lacklustre, while the strong US continued to damage the outlook. The ISM gauge reached 48.2 in January, while the previous month’s reading was downwardly revised to 48.0. However, the slight uptick in new orders - 51.5 versus 48.8 in December and production (50.2 vs. 49.9) may signal a stabilisation of the sector even though employment slid to 45.9 from 48.0 in December. Overall, the market was broadly expecting this poor data as most USD crosses remained stable. EUR/USD is still trading within its medium-term range, between 1.0711 and 1.1060, currently trading at around 1.09. We maintain our bearish bias as the odds of an easing move from the ECB grow day by day.
The Reserve Bank of Australia left its cash rate target unchanged at 2.00%, in line with market expectations, but emphasised that the low inflation environment may justify further easing. In our view, the RBA seems relatively satisfied with the current levels of the Aussie as well as inflation, which is close to target, but has decided nevertheless to leave the door open for easing - just in case. Just like all the other commodity currencies, AUD/USD traded lower during the Asian session as crude oil weighed. The Aussie lost 0.51% against the greenback as it stumbled against the resistance implied by its 50dma, which currently lies at $0.7144, for the second time in three days. The loonie also felt the effects of crude oil as USD/CAD jumped 0.75% from yesterday low to 1.40; the bias remains positive.
In the equity market, Asian equities felt the heat overnight as worries about global growth and weak, falling oil prices came back under the spotlight. In Japan, the Nikkei slid 0.64%, while the broader TOPIX index fell 0.73%. In Australia, the S&P/ASX 200 was down 1%, while in New Zealand the NZX edged up 0.09%. Mainland Chinese stocks were trading significantly higher, erasing yesterday's losses, with the Shenzhen and Shanghai Composite up 2.26% and 3.42% respectively.
EUR/CHF continues its bull run, successfully validating a break of the previous high (1.1050 from September 11th). In the event of disappointing retail sales (due at 8h15 this morning), the pair should continue to chase higher ground.
Today traders will be watching unemployment from Spain, Germany, the euro zone and New Zealand; industrial production from Brazil; Markit/CIPS UK construction PMI; Swiss retail sales.
Currency Tech
EUR/USD
R 2: 1.1387
R 1: 1.1095
CURRENT: 1.0900
S 1: 1.0458
S 2: 1.0000
GBP/USD
R 2: 1.5242
R 1: 1.4969
CURRENT: 1.4394
S 1: 1.3657
S 2: 1.3503
USD/JPY
R 2: 125.86
R 1: 123.76
CURRENT: 120.65
S 1: 115.57
S 2: 105.23
USD/CHF
R 2: 1.0676
R 1: 1.0328
CURRENT: 1.0204
S 1: 0.9786
S 2: 0.9476