London Forex Report: Robust Payrolls Overshadowed By China Concerns
London Forex Report: Risk sentiment reprieve from robust US non-farm job gains proved short lived, as concerns over China jitters and global economic slowdown were quick to regain its grip and keep risk appetite at bay. Even though the China equity markets staged a rebound Friday after the suspension of the circuit breaker ruling and amid a lower CNY fixing, it appears it was just a knee jerk reaction and that traders are still very cautious and risk averse overall. China growth concerns will likely escalate as we approach the release of 4Q GDP and other first tier data due next Tuesday.
The US added more than expected 292k jobs in December and last two months job creation was revised higher by 50k. Jobless rate held steady at a 7.5-year low at 5.0% while participation edged up 0.1ppt to 62.6%. Stagnant average wage growth was the only soft spot but this did little dent to the overall positive job outlook, offering tentative signs warmer weather will have a less severe setback on 1Q growth in the US this year. USD strengthened on the back of firmer demand driven by strong US data flow. The USD Index however, failed to sustain strong gains and trended lower after US data releases to close at 98.54, up 0.34% for the day.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR slumped after stronger US data last Friday but clawed back to narrow losses to just 0.09% at 1.0922 against USD. There are very few euro area data or events to note this week ahead of next week’s January ECB meeting. Euro area November IP (Wed) is likely to show a decline given weak readings in the two biggest euro area countries (consensus: -0.2% m/m). Thursday’s ECB minutes from its December meeting, where it eased policy further but disappointed rhetorically, are unlikely to reveal much additional information.
Technical: While offers at 1.09 contain downside reactions, expect rotation to test offers at 1.10, a breach of 1.0850 resets bearish momentum and targets 1.0650 next.
Interbank Flows: Bids 1.08 stops below. Offers 1.0950 Stops above.
Retail Sentiment: Bearish
Trading Take-away: Sidelines
GBP/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP hit a fresh five and a half year low against the USD as the greenback received a lift from better than expected U.S. non-farm payrolls report, while hitting an 11-month low against the EUR. A number of market participants pushed back their rate-hike forecasts of U.K. to the fourth quarter of this year from the second as ‘Brexit’ concerns develop.
Technical: While 1.4630 caps upside reactions expect a grind lower to retest Friday’s lows en route to 1.4470 and ultimately the weekly symmetry objective of 1.4379.
Interbank Flows: Bids 1.4450 stops below. Offers 1.46 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: The USD/JPY climbed during the Asian session as risk aversion eased after a stabilization of the yuan on last Friday. The USD/JPY failed to sustain gains despite the upbeat U.S. non-farm payrolls report as concerns over China pushed markets into safe-haven currencies before weekend. Japanese markets are closed today for the Coming-of-Age day Holiday.
Technical: While 119 caps intraday upside attempts expect a grind lower en route to test 116.35 as the next downside objective. Only above 119.30 eases immediate downside pressure.
Interbank Flows: Bids 116.50 stops below. Offers 119 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: According to the latest CFTC data released on Fri, spec JPY positioning flipped to net long for the first time since Abe was appointed Prime Minister in Oct 2012. After short lived relief rally, the cross is back under pressure tracking the reemergence of risk off sentiment with the Shanghai Composite down over 5% overnight.
Technical: While 129.50 caps intraday upside reactions, expect a grind lower to retest Thursdays lows at 126.70s; a failure here opens a test of bids at 126. Only over 130 eases immediate downside pressure
Interbank Flows: Bids 126.50 stops below. Offers 129.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: AUD climbed during the Asian session as a stronger yuan fixing on last Friday, while fell to a fresh-low of 0.6949 following a strong U.S. non-farm payrolls reading. Traders worried about China, which is the second-largest economy in the world, is growing more slowly than markets expected and could further weigh on Aussie dollar. Markets await domestic employment figures due this week.
Technical: While .7050 caps intraday upside expect a grind lower to test 2015 lows. Only a breach of .72 eases immediate downside pressure.
Interbank Flows: Bids .69 stops below. Offers .7050 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Fundamental: CAD hit a fresh 12-year low against the USD overnight with the collapse of crude oil prices weighing on the Canadian dollar, sending USD/CAD to daily high of 1.4188. Canadian domestic data showed employment rose on average less than 1 percent for two consecutive years, which has only happened four times since 1945, while the unemployment rate rose to 7.1 percent in December 2015, comparing with the previous year’s 6.7 percent.
Technical: Bulls have the ball while 1.4050 supports, expect a grind higher to test stops above 1.42. Only below 1.40 eases immediate bullish pressure
Interbank Flows: Bids 1.40 stops below. Offers 1.42 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
