London Forex Report: Volatile Start To 2016 As China Trade Halted
London Forex Report: Fed’s vice chairman Stanley Fischer said that “raising interest rates may be the appropriate step” if asset prices are thought to be excessively high, paving the grounds for further rate tightening this year after the first hike in nearly a decade last month. In the same American Economic Association meeting on Sunday, Cleveland fed chair Loretta Mester said that the path of hike will be gradual and decisions will hinge on economic data and medium term outlook. Currently, the market anticipates four 25 bps hike in 2016. PMI data misses from China overnight have weighed on risk sentiment with circuit breakers triggered as the Shanghai Composite falls 7%.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR dropped to 1.0827 at the Asian open in thin liquidity before reversing losses and trading back through 1.0880 at the open as USD started the year under pressure. Rise in risk aversion supporting EUR at the start of the week. EUR/USD traded back to test offers towards 1.09 ahead of the London open. Over the weekend, Greek finance minister said the IMF is not convinced that Greece will meet its fiscal targets. Market is now waiting for the release of Eurozone December manufacturing PMI.
Technical: While offers at and just above 1.0930 contain upside attempts, expect rotation south to test 1.0850 bids; failure here opens retest of overnight lows ahead of symmetry objective at 1.0730
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 ended 2015 on the back foot, lower by 0.54% to 1.4736, registering its lowest print since April last year. Traders believe UK Prime Minister David Cameron could call a European Referendum vote for as early as June/July this year, well ahead of his self-imposed 31 Dec 2017 deadline, which could maintain pressure on GBP because of the event risk. Key data this week includes manufacturing PMI data today, services PMI on Wednesday and trade balance on Friday.
Technical: While 1.48 caps intraday upside, expect a drift lower to retest bids at 1.4690, a breach of 1.4830 opens test of pivotal 1.49 level.
Interbank Flows: Bids 1.47 stops below. Offers 1.48 stops above
Retail Sentiment: Bullish
Trading Take-away: Sell pullback against 1.48/49 for 1.45
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD registered its fourth consecutive year of gains against the JPY in 2015. 2016 has opened with broad USD weakness at the Asian open pushing USD/JPY down to 120.02. The big China PMI data miss has put the focus firmly back on risk aversion supporting JPY. Stops were triggered down to sub-119.50 as Nikkei plunged over two and a half percent.
Technical: While 120.30 caps intraday upside attempts, expect a sustained break of 119.50 to test bids at and just below the 119 figure.
Interbank Flows: Bids 119 stops below. Offers 120 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: The cross opens the year under significant pressure weighed on by the strong risk aversion sentiment that has developed overnight with sizable data miss out of China dragging global equity markets lower and driving a move into the the relative safe haven JPY. Week ahead brings PMI mfg today; Nov leading, coincident index Friday.
Technical: While 131 caps intraday upside reactions, expect a grind lower to test bids at 129.60/50, failure here opens 128.30s as the next downside objective
Interbank Flows: Bids 129.50 stops below. Offers 131.20 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 ended 2015 sharply lower against the USD and could continue under pressure in this year if commodity prices remain weak. The Aussie ended 2015 around 11 percent lower, its third year of losses, and closed at 0.7275 on the last trading day of 2015. Dire data out of China overnight weighing on the AUD as 2016 takes the batten from 2015 with AUD under pressure.
Technical: While .7250 caps intraday upside, expect a test of .7150 ahead of pivotal .7100
Interbank Flows: Bids .7150 stops below. Offers .7250 stops above
Retail Sentiment: Neutral
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Fundamental: CAD ended 2015 on a positive note against USD as crude oil prices rallied, ending a year in which it weakened by 16 percent and verified its worst performance since the global financial crisis of 2008. The loonie fell 16 percent to touch an 11-year low in 2015, pressured by deep losses for crude oil prices and two rate cuts from the Bank of Canada, while the US Federal Reserve hiked rates for the first time in more than nine years.
Technical: Bulls have the ball while 1.37 supports, expect a grind higher to test stops above 1.40 while 1.3840 caps intraday downside. A close below 1.37 would ease the near term bullish bias.
Interbank Flows: Bids 1.3850 stops below. Offers 1.40 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
