Market Brief
Asian equities traded slightly lower on Tuesday as investors still try to determine whether the recovery has legs. However, the current scenario looks more like a consolidation than a sell-off as most indices are still higher on the week. In Tokyo, stocks edged slightly lower with the Nikkei 225 down 0.37% and the broader Topix index down 0.68%. In mainland China, equities settled down roughly 1% with the Shenzhen and Shanghai Composite falling 0.81% and 0.58% respectively. Offshore, Hong Kong’s Hang Seng slid 0.24%, while in Singapore the STI settled up 0.47%. In Europe, equity futures are trading in negative territory with the DAX down -0.80%, the Footsie -0.83%, the SMI -0.61% and the Euro Stoxx 600 -0.76%. US futures are also blinking red on the screen.
Safe haven assets were again favoured by investors as the equity rally paused. The Japanese yen stretched back below ¥112.50 for $1 overnight as US rates on the short end fell sharply. However, the rush into US sovereign bonds was short-lived as yields returned quickly to their initial levels. The yen was up 0.70% against the greenback. On the downside, the strong support implied by the low of February 11th, at 110.99, should prevent the pair from moving further south in the absence of significant news today. However, on the medium-term we are rather bullish USD/JPY as we believe it is only a matter of time before the BoJ translates words into deeds and weakens the yen.
The Swiss franc was buoyed in Tokyo with USD/CHF falling by 50bps to 0.9950, unable to break the strong resistance area at between 0.9980 and 1.00 (50dma and psychological level). However, we maintain our view that the USD was recently oversold and we therefore believe that a USD recovery is on its way as US treasury yields keep pushing higher. On the upside, a key resistance stands at 1.0257 (high from January 29th), while on the downside an hourly support lies at 0.9847 and a key one can be found at 0.9661 (February 11th).
The pound sterling paired losses - once again - in Asia as Brexit fears remain the market’s main concern. GBP/USD is about to test the key 1.41 support level for the second time this week. However, given the sharp depreciation of the sterling over the last few days, we will not be surprised if the pair starts to consolidate slightly higher. Over the medium-term, we expect the GBP to remain under pressure as Brexit fears coupled with the prospect of low interest rates will prevent any substantial appreciation of the pound against most currencies.
Today traders will be watching IFO survey from Germany; SNB’s chairman Jordan will give a speech in Frankfurt; interest rate decision from Turkey; mid-month inflation from Brazil; S&P/CaseShiller, Richmond Fed Manufacturing index and existing home sales from the US.
Currency Tech
EUR/USD
R 2: 1.1376
R 1: 1.1193
CURRENT: 1.1036
S 1: 1.0893
S 2: 1.0711
GBP/USD
R 2: 1.4591
R 1: 1.4409
CURRENT: 1.4108
S 1: 1.3845
S 2: 1.3657
USD/JPY
R 2: 117.53
R 1: 114.91
CURRENT: 112.05
S 1: 110.99
S 2: 105.23
USD/CHF
R 2: 1.0257
R 1: 1.0074
CURRENT: 0.9941
S 1: 0.9847
S 2: 0.9660