New York Forex Report: The plunge in China equities not only triggered a trading halt but also prompted broad-based sell-offs in major equities globally. This, coupled with rising geopolitical tension in the Middle-east, resulted in a bout of risk-off sentiments as the new year begins. Weaker than expected manufacturing prints from the US and UK further dampened the already fragile growth outlook. In spite of weakness on the data front, two Fed officials reiterated that US fundamentals remained sound and temporary volatility in the financial markets does not post significant risk to the economy. These Hawkish comments prompted USD buying which has continued over the early European session so far today whilst Equity markets remain weak in the wake of the risk-off tone with which the New Year has started.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR extended losses over early European trading today as yet further data weakness in the Eurozone spurred heavy selling. EZ Dec CPI printed below expectations in both headline and core inflation, mirroring weak German inflation data yesterday. Data weakness is prompting expectations for further ECB easing.
Technical: While offers at and just above 1.0950 contain upside attempts, expect rotation south to test bids at corrective symmetry objective at 1.0730, expect buyers to emerge 1.0750/30 on the initial test
Interbank Flows: Bids 1.0750 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 nine-month low yesterday, as worries that UK growth would not be strong enough to justify an interest rate rise this year, and uncertainties over a possible “Brexit” from Europe also weighed on the currency. UK Dec Construction PMI data printed above expectations but was unable to support sterling, which continues lower heading into the US crossover.
Technical: While 1.4850 caps intraday upside, expect a drift lower to retest bids at 1.4565 the 2015 lows.
Interbank Flows: Bids 1.4650 stops below. Offers 1.48 stops above
Retail Sentiment: Bullish
Trading Take-away: Short from 1.48 for 1.45
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Despite Bank of Japan Governor Haruhiko Kuroda signalling his readiness yesterday to take even bolder steps if necessary to meet the bank’s two percent price target, JPY remains well bid as safe-haven demand continues amidst global uncertainty stemming from the China trading ban.
Technical: While 120 caps intraday upside attempts, expect a sustained break of 118.50 to test bids at and just below the 118 figure. A breach of 120 opens the potential for correction to test 121
Interbank Flows: Bids 118.50 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: With the turmoil in the Chinese and global equity markets on Monday, EUR/JPY traded below the 129 mark for the first time in two months and spot remains heavy over early European trading today in light of JPY safe-haven strength and EUR data driven weakness. Wednesday’s services and composite PMIs will be eyed as a further catalyst for further risk off trading which will likely weigh further on the cross.
Technical: While 130 caps intraday upside reactions, expect a grind lower to retest bids at 128.60/50, failure here opens 2015 lows at 126.50’s as the next downside objective.
Interbank Flows: Bids 128.50 stops below. Offers 130 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 remains weak over early European trading today as the USD surges following Hawkish Fed comments yesterday and continued risk-off mood despite action from the PBOC to stabilise markets in the aftermath of an imposed trading ban.
Technical: While .7250 caps intraday upside expect a test of .7150 ahead of pivotal. 7100. A breach of .7250 opens a move back to test offers at the range highs of.7340
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 was yesterday weakened by the most in more than two weeks, distressed by a sharp fall in Chinese shares that weighed on commodity-linked currencies and global stock markets. Canada’s manufacturing sector contracted for the fifth straight month as activity fell to a record low in December. USD/CAD remains rangebound so far today as oil trades a sticky range and USD firms.
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
