India leads emerging economies
India continues to be a bright spot in the global economy. India's 4Q 2015 headline GDP expanded 7.3% y/y above expectations. Manufacturing surprisingly spiked in 4Q yet overall solid results were driven by improvements in the service sector. The stronger result caused the government to forecast an increase of 7.6% in FY 2015- 2016. Despite the strength there are questions regarding calculation of gray areas which could drive underperformance. We remain cautiously optimistic on India and expect the RBI to remain on the growth offensive (as inflation outlook slows) with 50bp repo rate cuts in H1 2016.
The positive read (while backwards looking) reminds us that a lot of the volatility we are seeing today is price adjustment rather the structural changes hence our semi optimistic outlook. Volatility should increase as questions over central bank policy effectiveness emerge, yet overall global growth in 2016 should out pace 2015.
Global Uncertainties keep going
Oil prices remain heavy as news from the Venezuelan and Saudi Arabian meeting over production does not seem to have generated any supply changes. Investors continue to reduce exposure to risky assets as the S&P 500 fell to the lowest level since 2014. The fall in US stocks was broad based as traders indiscriminately dumped everything. The wide spread erosion in risk sentiment sent US treasures lower as the U.S. 10-Year yields dropped to a 1 year low. Traders continue to push out expectation for the next Fed rate move. Safe haven currencies, predominantly the JPY, are leading gains over the USD. We suspect now is a good time to reload EUR/USD short as expectations are high for Draghi and the ECB to tackle slowing European inflation in March with additional stimulus.
Australian Business conditions hold ground
The latest National Australian Bank (NAB) survey suggests that it will take more than the current financial turmoil to seriously dampen the mood of Australian companies as the business confidence gauge remained flat at 2, while the business condition mark eased slightly to 5 from 6 in December. With the exception of the mining economy, the rest of the Australian economy held up in January as most companies appear to be willing to remain optimistic, preferring to stay focussed on the medium to long-term outlook rather than worrying too much on short-term market conditions. However, in spite of the resilience of the Aussie economy, the data suggests that employment conditions worsened in the first month of the year, which diverged from December’s job report.
All in all, with the exception of the mining economy, the data suggests that the Australian economic recovery is firmly on track. In the FX market, AUD/USD is edging higher this morning as crude oil prices recover from yesterday’s sell-off. On the medium-term, the Fed rate cycle story will remain the main driver as Janet Yellen is expected to make several speeches this week.
Silver
The Risk Today
EUR/USD keeps on pushing higher. Daily resistance lies at 1.1387 (20/11/2015 high). Hourly support may be found at 1.0711 (05/01/2016 low). Yet, expected to show further consolidation. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).
GBP/USD' bullish momentum short-term momentum has faded. Hourly resistance can be found at 1.4668 (08/02/2016 high). Hourly support can be found at 1.4081 (21/01/2015 low). Yet, the technical structure is still positive.Expected to show further consolidation The long-term technical pattern is negative and favours a further decline towards the key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.
USD/JPY has erased hourly support at 115.98 (20/01/2016 low). Hourly resistance lies can be found at 123.76 (18/11/2015 high). Expected to show further decline. The strong support at 115.57 (16/12/2014 low) has been broken. We start favouring a long-term bearish bias. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).
USD/CHF is definitely back to bearish. Hourly support is located at 0.9786 (14/12/2015 low) and hourly resistance can be found at 1.0328 (27/11/2015 high). Expected to show continued decline. In the long-term, the pair has broken resistance at 0.9448 suggesting further uptrend. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.
