Tag: ECB

  • EUR/USD recovers strongly as Trump defers tariff plans for Canada and Mexico

    EUR/USD recovers strongly as Trump defers tariff plans for Canada and Mexico


    • EUR/USD rebounds sharply to near 1.0350 as US President Trump postpones his orders of tariffs on Canada and Mexico for 30 days.
    • Trump’s intentions to impose tariffs on China remain intact.
    • The ECB is expected to cut interest rates three times more this year.

    EUR/USD bounces back from the intraday low of 1.0270 and rebounds to near 1.0350 in Tuesday’s North American session. The major currency pair finds buyers’ demand as United States (US) President Donald Trump’s decision to postpone tariffs on Canada and Mexico has diminished the safe-haven appeal of the US Dollar (USD).

    The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, surrenders its intraday gains and trades at 108.44 at the time of writing, right on track to Monday’s low of 108.40.

    US President Trump suspended tariff imposition on his North American partners after they agreed to cooperate to stop the flow of fentanyl. On the other hand, the president’s proposal of imposing 10% tariffs on China is still on the table, and moreover, he has even proposed to go further. “China hopefully is going to stop sending us fentanyl, and if they’re not, the tariffs are going to go substantially higher,” Trump said.

    Meanwhile, China has delivered a swift response to Trump’s tariffs with higher levies of 15% on Coal and Liquified Natural Gas (LNG), and 10% for Crude Oil, farm equipment, and some autos.

    Such a scenario indicates that the trade war will not go global and will remain majorly between the US and China, which has weighed on demand for safe-haven assets.

    On the economic front, the US Dollar will be guided by a slew of labor market-related economic indicators this week, such as JOLTS Job Openings, ADP Employment Change and Nonfarm Payrolls (NFP) data, and the US ISM Services PMI figures.

    The labor market data will influence market speculation for the Federal Reserve’s (Fed) monetary policy outlook for the entire year. Currently, the Fed is in a waiting mode in interest rates until it sees any “real progress in inflation or at least some weakness in the labor market”.

    US Dollar PRICE Today

    The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

      USD EUR GBP JPY CAD AUD NZD CHF
    USD   -0.49% -0.24% 0.36% -1.25% -0.53% -0.40% -0.47%
    EUR 0.49%   0.25% 0.85% -0.77% -0.04% 0.09% 0.01%
    GBP 0.24% -0.25%   0.58% -1.02% -0.29% -0.16% -0.23%
    JPY -0.36% -0.85% -0.58%   -1.59% -0.87% -0.75% -0.81%
    CAD 1.25% 0.77% 1.02% 1.59%   0.73% 0.86% 0.81%
    AUD 0.53% 0.04% 0.29% 0.87% -0.73%   0.13% 0.09%
    NZD 0.40% -0.09% 0.16% 0.75% -0.86% -0.13%   -0.07%
    CHF 0.47% -0.01% 0.23% 0.81% -0.81% -0.09% 0.07%  

    The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

    Daily digest market movers: EUR/USD rebounds at USD’s expense

    • The recovery move in the EUR/USD pair has come from some weakness in the US Dollar, while the outlook for the Euro (EUR) continues to remain uncertain as investors expect the Eurozone would be the next to face lethal tariff threats by US President Trump. Over the weekend, Trump said that he would definitely impose tariffs on the Eurozone after accusing the old continent of not buying enough US cars and farm products. He added that the EU takes “almost nothing and we take everything from them”.
    • In response to Trump’s tariff threats, French President Emmanuel Macron said that the European Union (EU) would retaliate if its interests were targeted. “If our commercial interests are attacked, Europe, as a true power, will have to make itself respected and therefore react,” Macron said, The Guardian reported.
    • Market experts believe that trade and investment between the old continent and the US are one of the largest globally, and a trade war between them would accelerate inflation and lead to an economic disruption. Higher Eurozone inflation would also create troubles for the European Central Bank (ECB), which is on the policy expansion path amid confidence that price pressures will sustainably return to the central bank’s target of 2% this year. 
    • On Tuesday, ECB policymaker and French Central Bank Governor François Villeroy de Galhau said, “There probably will be more ECB rate cuts as we are nearing to 2% inflation target.”
    • The ECB reduced its Deposit Facility rate by 25 basis points (bps) to 2.75% and guided that the monetary policy path is clear. Traders are confident that the ECB will deliver three more interest rate cuts by the summer.

    Technical Analysis: EUR/USD aims to return above 20-day EMA

    EUR/USD recovers from its three-week low of 1.0210 to trade near 1.0350 on Tuesday, but is still trading below the 20-day and 50-day Exponential Moving Averages (EMAs) around 1.0379 and 1.0439, respectively, suggesting a bearish trend.

    The 14-day Relative Strength Index (RSI) holds above 40.00. A bearish momentum could trigger if the RSI breaks below that level.

    Looking down, the January 13 low of 1.0177 and the round-level support of 1.0100 will act as major support zones for the pair. Conversely, the psychological resistance of 1.0500 will be the key barrier for the Euro bulls.

    Tariffs FAQs

    Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

    Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

    There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

    During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.

     



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  • EUR/USD slides as soft inflation in Germany’s six states validates ECB dovish bets

    EUR/USD slides as soft inflation in Germany’s six states validates ECB dovish bets


    • EUR/USD declines to near 1.0370 as inflation in six states of Germany decelerates in January.
    • Donald Trump threatens to impose 100% tariffs on BRICS and 25% on Mexico and Canada.
    • The Fed kept interest rates at their current levels on Wednesday.

    EUR/USD faces selling pressure and declines to near 1.0370 in Friday’s European session. The major currency pair declines as the Euro (EUR) weakens across the board amid a slowdown in inflationary pressures in six German states. Softer-than-expected Consumer Price Index (CPI) data for January boosts confidence that Eurozone price pressures are on track to return sustainably to the European Central Bank’s (ECB) desired rate of 2%, which will support the central bank in easing the monetary policy.

    On Thursday, ECB President Christine Lagarde showed confidence in announcing a victory over inflation this year in the monetary policy statement after the central bank reduced its Deposit Facility Rate by 25 basis points (bps) to 2.75%. In Friday’s European session, ECB policymaker and Estonian Central Bank chief Madis Muller also said that it is realistic for inflation to be near 2% “by the middle of this year”.

    Christine Lagarde’s comments at the press conference indicated that the ECB has kept the door open for further policy easing. Lagarde said that we are still in “restrictive territory” and it is premature to “anticipate at what point where will stop”. She avoided providing a pre-defined interest rate cut path and reiterated that we decide meeting by meeting based on data.

    Going forward, investors will focus on the flash Eurozone Harmonized Index of Consumer Prices (HICP) data for January, which will be released on Monday.

    But before that, the preliminary German HICP data for January will be published at 13:00 GMT. However, the impact is expected to be limited, as the inflation data in six German states have already indicated the current status of price pressures.

    Euro PRICE Today

    The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.

      USD EUR GBP JPY CAD AUD NZD CHF
    USD   0.28% 0.14% 0.25% 0.04% 0.04% -0.08% 0.15%
    EUR -0.28%   -0.14% -0.05% -0.23% -0.23% -0.38% -0.12%
    GBP -0.14% 0.14%   0.10% -0.09% -0.11% -0.24% 0.01%
    JPY -0.25% 0.05% -0.10%   -0.21% -0.21% -0.37% -0.10%
    CAD -0.04% 0.23% 0.09% 0.21%   -0.02% -0.15% 0.10%
    AUD -0.04% 0.23% 0.11% 0.21% 0.02%   -0.14% 0.12%
    NZD 0.08% 0.38% 0.24% 0.37% 0.15% 0.14%   0.26%
    CHF -0.15% 0.12% -0.01% 0.10% -0.10% -0.12% -0.26%  

    The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

    Daily digest market movers: EUR/USD weakens as Trump’s tariff threats improve USD’s appeal

    • EUR/USD remains under pressure as the broader outlook of the US Dollar (USD) remains firm, with the US Dollar Index (DXY) wobbling around 108.20. The safe-haven appeal of the Greenback strengthens as United States (US) President Donald Trump reiterated his intentions of imposing hefty tariffs on his North American peers and BRICS on Thursday.
    • Donald Trump said on his social media platform, TruthSocial, that he requires a commitment from the BRICS that it will “neither create a new currency nor back any other currency” to replace the US Dollar. Trump threatened that any country tries should “face 100% tariffs”, and expect to say “goodbye to selling into the wonderful US economy.”
    • Market experts believe that Donald Trump is using tariff measures as a tool to fulfill his economic agenda, and the imposition of hefty tariffs will be inflationary for the US economy. Such a scenario would support the Federal Reserve (Fed) in holding its stance of keeping interest rates unchanged in the range of 4.25%-4.50% for longer.
    • On Wednesday, the Fed maintained the status quo and guided to remain in the waiting mode until the central bank sees any “real progress in inflation or some weakness in the labor market”.
    • Meanwhile, the next move in the US Dollar will be guided by the US Personal Consumption Expenditure Price Index (PCE) data for December, which will be published at 13:30 GMT. Economists expect monthly core PCE inflation to have grown at a faster pace of 0.2%, compared to a 0.1% increase in November. Year-on-year, core PCE is estimated to have grown steadily by 2.8%.

    Technical Analysis: EUR/USD returns below 20-day EMA

    EUR/USD declines to near 1.0370 in Friday’s European session, below the 20-day Exponential Moving Average (EMA) around 1.0390. The major currency pair resumed its correction after failing to sustain above the 50-day EMA, which trades around 1.0449 at the press time.

    The 14-day Relative Strength Index (RSI) faces barricades near 60.00. Such a scenario indicates that the recovery move was short-lived.

    Looking down, the January 20 low of 1.0266 and January 13 low of 1.0177 will act as major support for the pair. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.

     



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  • Euro Gains Modestly After ECB Cut, Dollar Soft on GDP Miss

    Euro Gains Modestly After ECB Cut, Dollar Soft on GDP Miss


    Euro is trading slightly higher following the ECB’s widely expected 25bps rate cut, though the move lacks strong momentum. In her post-meeting press conference, President Christine Lagarde reinforced the bank’s “gradual easing path”.

    She stated that a larger 50bps cut was not even considered today, making it clear that an aggressive rate-cutting cycle is off the table for now.

    At the same time, Lagarde also emphasized that rates remain in “restrictive territory,” and ECB has not yet discussed ending its easing cycle, confirming that further rate cuts remain the way to go.

    Meanwhile, Dollar is under mild pressure after weaker-than-expected Q4 GDP data weighed on sentiment. The greenback slipped alongside US Treasury yields, with the 10-year yield briefly falling below 4.5% mark before recovering. Despite this, Dollar’s decline has been relatively contained outside of USD/JPY, where the Yen is benefiting from falling yields. There is little indication of a sustained Dollar decline at this stage.

    Across the broader forex market, Yen is currently the strongest performer of the day, followed by Euro and Pound. On the weaker side, Kiwi leads losses, followed by Dollar and Aussie. Loonie and Swiss Franc are trading in the middle of the pack.

    Technically, AUD/JPY’s decline is making progress today and breached 96.05 support. The development affirms the case that consolidation from 95.50 has completed at 98.75. Fall from 102.39 is likely ready to resume. Further decline should be seen through 95.50 to 61.8% projection of 102.39 to 95.50 from 98.75 at 94.49. However, touching of 55 4H EMA (now at 97.17) will delay the bearish case, and bring more consolidations first.

    US GDP growth slows to 2.3% in Q4, inflation pressures tick higher

    The US economy expanded at a 2.3% annualized rate in Q4, missing expectations of 2.6% and slowing from Q3’s 3.1% growth.

    The deceleration in growth was primarily driven by weaker investment activity, which offset gains in consumer and government spending. Meanwhile, imports declined, providing a slight boost to the overall GDP figure.

    Inflation data within the report signaled a modest pickup in price pressures. GDP price index rose 2.2% in Q4, up from 1.9% in the previous quarter, though below forecasts of 2.5%.

    PCE price index accelerated to 2.3% from 1.5%, while the core PCE price index (excluding food and energy), a key measure of inflation tracked by Fed, rose to 2.5% from 2.2%.

    US initial jobless claims falls to 207k vs exp 225k

    US initial jobless claims fell -16k to 207k in the week ending January 25, below expectation of 225k. Four-week moving average of initial claims fell -1k to 213k.

    Continuing claims fell -42k to 1858k in the week ending January 18. Four-week moving average of continuing claims rose 6k to 1872k.

    ECB cuts 25bps, disinflation well on track

    ECB delivered a widely expected 25bps rate cut, bringing main refinancing rate to 2.75%,  marginal lending rate  to 2.90%, and deposit rate to 3.15%.

    In its statement, ECB noted that the “disinflation process is well on track,” with inflation evolving broadly in line with projections. Policymakers expect inflation to reach the 2% medium-term target this year, with underlying inflation measures indicating price stability on a “sustained basis.”

    ECB acknowledged that domestic inflation remains elevated due to “wages and prices in certain sectors still adjusting to the past inflation surge with a substantial delay.” Despite this, the central bank noted that wage growth is “moderating,” and corporate profit margins are absorbing part of the cost pressures, preventing a stronger inflation rebound.

    Swiss KOF rises to 101.6, led by manufacturing and services

    Switzerland’s KOF Economic Barometer climbed to 101.6 in January, up from 99.6 and surpassing market expectations of 100.5. This data suggests modest pickup in economic momentum, particularly in production-side sectors.

    According to KOF, “the majority of the production-side indicator bundles included in the KOF Economic Barometer show positive developments.”

    The strongest contributions came from manufacturing, financial and insurance services, hospitality, and other service industries, signaling resilience in key sectors of the Swiss economy.

    However, the outlook remains uneven. While production indicators strengthened, demand-side indicators showed signs of weakness. KOF noted that both “the indicator bundles for foreign demand as well as for private consumption indicate a downward tendency,” highlighting subdued consumer activity and external trade concerns.

    BoJ’s Himino reiterates further hike possible if economic forecasts hold

    BoJ Deputy Governor Ryozo Himino reinforced expectations that the central bank could raise interest rates further if its economic and price projections are met.

    Speaking today, Himino stated, “If our economic and price forecasts are achieved, we will raise our policy rate accordingly and adjust the degree of monetary support.”

    Himino also highlighted concerns about Japan’s prolonged period of negative real interest rates, describing the situation as “not normal.”

    He explained that an ideal economic scenario for Japan would involve rising wages and corporate profits, fueling stronger consumption and investment, which would then support moderate and stable inflation. In such a case, Japan could see real interest rates turn positive.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0387; (P) 1.0415; (R1) 1.0449; More…

    EUR/USD recovers slightly but stays in range below 1.0531. Intraday bias remains neutral for the moment. Outlook is unchanged for now. On the downside, break of 1.0371 support will indicate rejection by 38.2% retracement of 1.1213 to 1.0176 at 1.0572 and retain near term bearishness. Retest of 1.0176 low should be seen next. On the upside, though, decisive break of 1.0572 will raise the chance of bullish reversal, and target 61.8% retracement at 1.0817.

    In the bigger picture, outlook is mixed as fall from 1.1274 (2023 high) could either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. Strong support from 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will favor the former case, and sustained break of 55 W EMA (now at 1.0722) will argue that the third leg might have started. However, sustained trading below 1.0199 will favor the latter case and bring retest of 0.9534 low.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Trade Balance (NZD) Dec 219M -1363M -437M -435M
    00:00 NZD ANZ Business Confidence Jan 54.4 62.3
    00:30 AUD Import Price Index Q/Q Q4 0.20% 1.50% -1.40%
    06:30 EUR France Consumer Spending M/M Dec 0.70% 0.10% 0.30% 0.20%
    06:30 EUR France GDP Q/Q Q4 P -0.10% 0.00% 0.40%
    07:00 CHF Trade Balance (CHF) Dec 3.49B 4.50B 5.42B 6.11B
    08:00 CHF KOF Economic Barometer Jan 101.6 100.5 99.5 99.6
    09:00 EUR Germany GDP Q/Q Q4 P -0.20% -0.10% 0.10%
    09:30 GBP Mortgage Approvals Dec 67K 65K 66K
    09:30 GBP M4 Money Supply M/M Dec 0.10% 0.20% 0.00%
    10:00 EUR Eurozone GDP Q/Q Q4 P 0.00% 0.10% 0.40%
    10:00 EUR Eurozone Unemployment Rate Dec 6.30% 6.30% 6.30%
    10:00 EUR Eurozone Economic Sentiment Indicator Jan 95.2 94.1 93.7
    10:00 EUR Eurozone Industrial Confidence Jan -12.9 -13.8 -14.1
    10:00 EUR Eurozone Services Sentiment Jan 6.6 6 5.9 5.7
    10:00 EUR Eurozone Consumer Confidence Jan F -14.2 -14.2 -14.2
    13:15 EUR ECB Deposit Rate 2.75% 2.75% 3.00%
    13:15 EUR ECB Main Refinancing Rate 2.90% 2.90% 3.15%
    13:30 USD Initial Jobless Claims (Jan 24) 207K 225K 223K
    13:30 USD GDP Annualized Q4 P 2.30% 2.60% 3.10%
    13:30 USD GDP Price Index Q4 P 2.20% 2.50% 1.90%
    13:45 EUR ECB Press Conference
    15:00 USD Pending Home Sales M/M Dec -0.90% 2.20%
    15:30 USD Natural Gas Storage -317B -223B

     



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  • Investors’ focus shifts to the ECB meeting and data

    Investors’ focus shifts to the ECB meeting and data


    The US Dollar traded in a positive fashion after the Fed left its interest rates unchanged, as widely anticipated, and Chief Powell delivered a neutral message at his press conference.

    Here is what you need to know on Thursday, January 30:

    The US Dollar Index (DXY) kept the weekly bid bias in place helped by rising yields and Powell’s tone. Another revision of Q4 GDP Growth Rate is due seconded by the weekly Initial Jobless Claims, and Pending Home Sales.

    EUR/USD dropped to the sub-1.0400 region, or four-day lows, in response to further strength in the Greenback and prudence ahead of the ECB event on Thursday. The ECB meeting and press conference by President C. Lagarde will take centre stage, followed by preliminary Q4 GDP Growth Rate prints in Germany and the broader Euroland, as well as EMU’s Unemployment Rate, Consumer Confidence and Economic Sentiment.

    GBP/USD rebounded from lows in the sub-1.2400 region, eventually ending the day around Tuesday’s closing levels. The BoE’s M4 Money Supply and Consumer Credit figures are expected along with Mortgage Approvals and Mortgage Lending.

    USD/JPY remained choppy, trading just above the 155.00 hurdle and fading part of Tuesday’s advance. The usual weekly Foreign Bond Investment figures will be released followed by the speech by the BoJ’s Himino.

    AUD/USD retreated for the third consecutive day, this time putting the 0.6200 support to the test. Export and Import Prices in Australia are due along with the speech by the RBA’s Jones.

    WTI resumed its bearish leg and broke below the $73.00 mark per barrel to flirt with fresh four-week lows.

    Gold prices faced renewed downside pressure, briefly revisiting the $2,750 zone per ounce troy following USD dynamics and the FOMC gathering. Silver prices added to Tuesday’s advance and flirted with multi-day peaks near the $31.00 mark per ounce.



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  • Dollar Recovery Capped by Stocks Rally, S&P 500 Ready for New Record

    Dollar Recovery Capped by Stocks Rally, S&P 500 Ready for New Record


    Despite being pressured in the past few days, Dollar remains relatively resilient, refusing to drop despite renewed selling pressure earlier today. US President Donald Trump’s tariff rhetoric is having a diminishing effect on markets, as traders shift their attention back to fundamental and intermarket dynamics. The first significant market reaction to tariffs is likely to come only after actual implementation, with the initial measures on Canada, Mexico, and China anticipated on February 1.

    A key intermarket factor aiding Dollar’s stability is recovery in US Treasury yields, which is providing some support. However, upside momentum of the greenback is clearly capped by strong risk-on sentiment in equity markets. In particular, S&P 500, currently hovering just inch below its all-time high of 6099.97, is showing robust upward momentum. Decisive break above this level would confirm the resumption of the index’s long term up trend, with upper channel resistance (now at around 6380) as next target.

    For the week so far, Japanese Yen is the weakest performer as markets look past BoJ’s expected rate hike on Friday. Dollar follows as the second worst performer, trailed Loonie. In contrast, Kiwi is still leading gains, despite expectations of another 50bps RBNZ rate cut after inflation data. Euro is supported by ECB officials’ reassurances of gradual easing, making it the second-best performer. Aussie Australian Dollar comes in third strongest, with Sterling and Swiss Franc positioned in the middle of the pack.

    ECB’s Lagarde highlights regular, gradual rate cuts as policy diverges from Fed

    ECB President Christine Lagarde emphasized the central bank’s commitment to a “regular, gradual path” of monetary easing, citing progress in disinflation across the Eurozone.

    Speaking to CNBC, Lagarde reiterated that the pace of rate cuts will depend on incoming data. Meanwhile, she described the neutral rate — where monetary policy neither stimulates nor restricts the economy — as between 1.75% and 2.25%.

    Lagarde also acknowledged the divergence in monetary policy paths between ECB and Fed. She attributed this gap to differing economic circumstances, noting that the two central banks “did not reduce rates at the same pace.” Markets, she said, are pricing in “vastly different monetary policy moves” over the next few months, reflecting these fundamental differences.

    On external risks, Lagarde played down concerns about inflation being exported to Europe from the US, suggesting that any reigniting of U.S. inflation would primarily impact the U.S. economy. She added, “We are not overly concerned by the export of inflation to Europe.” However, she acknowledged potential spillover effects through the exchange rate, which “may have consequences.”

    SNB’s Schlegel: Negative rates remain a tool, despite being unpopular

    SNB Chair Martin Schlegel said today at the World Economic Forum in Davos that with the policy rate currently at 0.50%, “we still have some room” for adjustments. But he ruled out any firm commitment on future rate moves.

    While negative rates remain an unpopular tool in Switzerland, Schlegel noted that the SNB would reintroduce them if deemed necessary to stabilize monetary conditions.

    Looking ahead to the SNB’s next policy meeting in March, Schlegel indicated that the central bank will evaluate whether further rate adjustments are warranted.

    “At the moment monetary conditions are appropriate. We decide from quarter to quarter and then we will see,” he said, refraining from estimating the likelihood of rates turning negative again.

    Schlegel also addressed risks stemming from global uncertainties, particularly the tariff hikes proposed by Trump administration. While he downplayed the direct impact of such measures on Swiss inflation, he acknowledged that heightened global risks could bolster the safe-haven appeal of the Swiss Franc.

    “Whenever there is a crisis, investors tend to buy the Swiss Franc,” Schlegel said, highlighting the currency’s role in monetary conditions alongside interest rates.

    New Zealand CPI unchanged at 2.2% yoy, non-tradeable pressures persist

    New Zealand’s CPI rose 0.5% qoq in Q4 2024, in line with expectations, as tradeable inflation increased 0.3% qoq and non-tradeable inflation rose 0.7% qoq. Annually, CPI was unchanged at 2.2% yoy, slightly exceeding the anticipated 2.1% yoy. This marks the second consecutive quarter that inflation has stayed within RBNZ’s target range of 1% to 3%.

    The data highlights diverging trends within inflation components. Non-tradeable inflation, which reflects domestic demand and supply conditions and excludes foreign competition, stood at 4.5% yoy, highlighting persistent internal price pressures. Tradeable inflation, influenced by global factors, recorded a -1.1% yoy decline.

    Rent prices were the largest contributor to the annual CPI increase, rising 4.2% and accounting for nearly 20% of the overall 2.2% gain. Lower petrol prices, down -9.2% yoy, offset some of the upward momentum, with CPI excluding petrol increasing 2.7% yoy.

    Australia’s Westpac Leading Index falls to 0.25%, signals gradual growth pickup

    Westpac Leading Index for Australia dipped slightly in December, moving from 0.33% to 0.25%. Westpac noted that while the growth signal remains modest, it reflects a marked improvement from the consistently negative and below-trend readings observed over the past two years. This uptick hints at a gradual lift in economic momentum through the first half of 2025.

    Westpac forecasts GDP growth to improve steadily over the course of 2025, projecting a year-end expansion of 2.2%—a notable recovery from the weak 0.8% growth recorded in the year to September 2024. However, the bank noted that while this represents progress, it remains below the economy’s long-term potential.

    Westpac highlighted that recent improvements in the Leading Index coincide with mixed signals on broader economy. A key concern for RBA is the labor market, where the “rebalancing” stalled in H2 2024.

    “A further slowdown in underlying measures of inflation could still see the Bank ease in February or April but we suspect the RBA will need to be more comfortable about some of these risks before it is prepared to begin easing,” Westpac noted.

    USD/CHF Mid-Day Outlook

    Daily Pivots: (S1) 0.9032; (P) 0.9077; (R1) 0.9102; More…

    Intraday bias in USD/CHF stays neutral for now, as the pair is in mild recovery. Price actions from 0.9200 are seen as a near term corrective pattern only. Further rally is expected with 0.9007 support intact. On the upside, decisive break of 0.9223 will carry larger bullish implications. However, break of 0.9007 will turn bias back to the downside for deeper pull back to 55 D EMA (now at 0.8950).

    In the bigger picture, as long as 0.9223 resistance holds, price actions from 0.8332 (2023 low) are seen as a medium term corrective pattern. That is, long term down trend is in favor to resume through 0.8332 at a later stage. However, sustained break of 0.9223 will be an important sign of bullish trend reversal.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD CPI Q/Q Q4 0.50% 0.50% 0.60%
    21:45 NZD CPI Y/Y Q4 2.20% 2.10% 2.20%
    00:00 AUD Westpac Leading Index M/M Dec 0.00% 0.10%
    07:00 GBP Public Sector Net Borrowing (GBP) Dec 17.8B 13.7B 11.2B 11.8B
    13:30 CAD Industrial Product Price M/M Dec 0.20% 0.80% 0.60%
    13:30 CAD Raw Material Price Index Dec 1.30% 0.40% -0.50% -0.10%

     



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  • Kiwi Eases as NZ CPI Backs RBNZ 50bps Cut, Dollar Unmoved by Trump’s Continuous Tariff Talks

    Kiwi Eases as NZ CPI Backs RBNZ 50bps Cut, Dollar Unmoved by Trump’s Continuous Tariff Talks


    New Zealand Dollar softened mildly today as Q4 inflation data reinforced the case for continued monetary easing by RBNZ. The central bank has ample room to swiftly bring interest rate from the current 4.25% to neutral, with inflation staying at around mid-point of 1-3% target range for the second straight quarter.

    Another 50bps rate cut on February 19 should be solidified. However, beyond this, the scale further rate reductions by RBNZ will depend heavily on domestic disinflationary progress, especially in non-tradeable prices, as the effects of falling tradeable prices fade.

    Elsewhere, Dollar’s pull back this week have slowed, but it has yet to stage a convincing recovery. President Donald Trump’s ongoing rhetoric on tariffs continued to draw attention but had little immediate impact on markets. Trump reiterated yesterday his intention to impose a 10% tariff on China, accusing it of enabling fentanyl shipments through Canada and Mexico to the US. He also repeated his threat to target EU with tariffs, calling it the “only way” to achieve trade “fairness”. Markets, however, appeared unfazed, awaiting concrete actions to back Trump’s statements.

    Key dates for tariff announcements include February 1, when decisions on 25% tariffs for Canada and Mexico and 10% tariffs on China are expected. For other countries, tariff measures may be delayed until federal trade reviews conclude on April 1. With no immediate actions, Trump’s remarks seem more rhetorical than actionable.

    In terms of weekly performance so far, Dollar remains the weakest major currency, followed by Yen and Swiss Franc, reflecting a risk-on sentiment across US and European markets. Kiwi continues to lead gains despite today’s pullback, with Euro and Sterling following suit. Aussie and Loonie are mixed in middle positions.

    Technically, a short term bottom is formed at 0.5540 in NZD/USD, just ahead of 0.5511 (2022 low). More consolidations would be seen with risk of stronger recovery. But as long as 55 D EMA (now at 0.5751) holds, larger down trend is expected to resume through 0.5511/40 sooner rather than later. Nevertheless, strong break of 55 D EMA will bring further rebound to 38.2% retracement of 0.6378 to 0.5540 at 0.5860, as the corrective pattern lengthens.

    ECB’s Knot supports near-term rate cuts, not convinced of of stimulus mode

    Dutch ECB Governing Council member Klaas Knot expressed agreement with market expectations for rate cuts at the January and March meetings, saying he is “pretty comfortable” with them. However, he added it is “too early to comment” on further cuts beyond March.

    “As long as the incoming data is in line with our projected return of inflation to target later this year then I think there is little obstacle to making another rate cut,” Knot said. “To change my mind for next week, it’s rather unlikely.”

    Knot reiterated ECB’s trajectory toward a neutral policy stance. But he emphasized, “I’m not convinced yet that we need to go into stimulative mode as well.”

    He expressed optimism that recent inflation data is “encouraging”. “It confirms the broad picture that we will return to target in the remainder of the year, and hopefully the economy will also finally recover a bit,” he added.

    However, Knot flagged risks posed by US trade policies, describing punitive tariffs as a “clear downside risk on the horizon.”

    New Zealand CPI unchanged at 2.2% yoy, non-tradeable pressures persist

    New Zealand’s CPI rose 0.5% qoq in Q4 2024, in line with expectations, as tradeable inflation increased 0.3% qoq and non-tradeable inflation rose 0.7% qoq. Annually, CPI was unchanged at 2.2% yoy, slightly exceeding the anticipated 2.1% yoy. This marks the second consecutive quarter that inflation has stayed within RBNZ’s target range of 1% to 3%.

    The data highlights diverging trends within inflation components. Non-tradeable inflation, which reflects domestic demand and supply conditions and excludes foreign competition, stood at 4.5% yoy, highlighting persistent internal price pressures. Tradeable inflation, influenced by global factors, recorded a -1.1% yoy decline.

    Rent prices were the largest contributor to the annual CPI increase, rising 4.2% and accounting for nearly 20% of the overall 2.2% gain. Lower petrol prices, down -9.2% yoy, offset some of the upward momentum, with CPI excluding petrol increasing 2.7% yoy.

    Australia’s Westpac Leading Index falls to 0.25%, signals gradual growth pickup

    Westpac Leading Index for Australia dipped slightly in December, moving from 0.33% to 0.25%. Westpac noted that while the growth signal remains modest, it reflects a marked improvement from the consistently negative and below-trend readings observed over the past two years. This uptick hints at a gradual lift in economic momentum through the first half of 2025.

    Westpac forecasts GDP growth to improve steadily over the course of 2025, projecting a year-end expansion of 2.2%—a notable recovery from the weak 0.8% growth recorded in the year to September 2024. However, the bank noted that while this represents progress, it remains below the economy’s long-term potential.

    Westpac highlighted that recent improvements in the Leading Index coincide with mixed signals on broader economy. A key concern for RBA is the labor market, where the “rebalancing” stalled in H2 2024.

    “A further slowdown in underlying measures of inflation could still see the Bank ease in February or April but we suspect the RBA will need to be more comfortable about some of these risks before it is prepared to begin easing,” Westpac noted.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6224; (P) 0.6257; (R1) 0.6305; More…

    Intraday bias in AUD/USD stays neutral for the moment. With 0.6301 resistance intact, consolidations from 0.6130 should be relatively brief, and further decline is expected. Break of 0.6130 will resume the fall from 0.6941. However, firm break of 0.6310 will turn bias back to the upside for stronger rebound to 55 D EMA (now at 0.6352), and possibly above.

    In the bigger picture, down trend from 0.8006 (2021 high) is resuming with break of 0.6169 (2022 low). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806, In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6545) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD CPI Q/Q Q4 0.50% 0.50% 0.60%
    21:45 NZD CPI Y/Y Q4 2.20% 2.10% 2.20%
    00:00 AUD Westpac Leading Index M/M Dec 0.00% 0.10%
    07:00 GBP Public Sector Net Borrowing (GBP) Dec 17.8B 13.7B 11.2B 11.8B
    13:30 CAD Industrial Product Price M/M Dec 0.80% 0.60%
    13:30 CAD Raw Material Price Index Dec 0.40% -0.50%

     



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  • EUR/JPY climbs to one-week top, closer to mid-162.00s amid weaker JPY

    EUR/JPY climbs to one-week top, closer to mid-162.00s amid weaker JPY


    • EUR/JPY scales higher for the fourth straight day amid the emergence of some JPY selling.
    • The divergent BoJ-ECB policy expectations should keep a lid on the upside for the cross.
    • Traders now look to ECB President Christine Lagarde’s speech for short-term opportunities.

    The EUR/JPY cross attracts follow-through buyers for the fourth straight day on Wednesday and looks to build on its recovery from the 159.70-159.65 area, or over a one-month low touched last week. The intraday positive move lifts spot prices to a one-week top, around the 162.35-162.40 area during the Asian session and is sponsored by the emergence of some selling around the Japanese Yen (JPY).

    The global risk sentiment remains well supported by the Israel-Hamas ceasefire agreement and hopes that US President Donald Trump might relax curbs on Russia in exchange for a deal to end the Ukraine war. Adding to this, Trump’s proposed trade tariffs lacked details, which further boosted investors’ appetite for riskier assets. This, in turn, is seen undermining demand for the safe-haven JPY and acting as a tailwind for the EUR/JPY cross.

    That said, the growing acceptance that the Bank of Japan (BoJ) will raise interest rates on Friday should limit any meaningful JPY depreciation. Furthermore, a modest US Dollar (USD) strength, along with Trump’s threat to impose tariffs on the European Union and bets that the European Central Bank (EC) will lower borrowing costs further, seem to weigh on the shared currency and should cap any further gains for the EUR/JPY cross. 

    The aforementioned fundamental backdrop and the recent repeated failures near the 200-day Simple Moving Average (SMA) warrant some caution for bullish traders. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further appreciating move. Traders now look to ECB President Christine Lagarde’s speech for some impetus, though the focus will remain glued to the crucial BoJ policy meeting.

    Japanese Yen PRICE Today

    The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the New Zealand Dollar.

      USD EUR GBP JPY CAD AUD NZD CHF
    USD   0.08% 0.02% 0.25% 0.02% 0.13% 0.23% 0.12%
    EUR -0.08%   -0.07% 0.16% -0.07% 0.05% 0.15% 0.04%
    GBP -0.02% 0.07%   0.23% -0.00% 0.12% 0.21% 0.09%
    JPY -0.25% -0.16% -0.23%   -0.22% -0.12% -0.03% -0.15%
    CAD -0.02% 0.07% 0.00% 0.22%   0.12% 0.21% 0.08%
    AUD -0.13% -0.05% -0.12% 0.12% -0.12%   0.10% -0.03%
    NZD -0.23% -0.15% -0.21% 0.03% -0.21% -0.10%   -0.13%
    CHF -0.12% -0.04% -0.09% 0.15% -0.08% 0.03% 0.13%  

    The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

     



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  • Dollar Weakened by Reports Trump Is Holding Off on New Tariffs

    Dollar Weakened by Reports Trump Is Holding Off on New Tariffs


    Dollar weakened broadly in early US session as reports from The Wall Street Journal indicated that Donald Trump, during his inauguration, will only outline his trade vision but avoid imposing new tariffs for now. While this temporarily calms market fears of immediate disruptions, the situation remains dynamic, and unexpected developments could trigger sharp reversals, especially if the WSJ report proves inaccurate.

    According to the report, Trump plans to issue a memorandum directing federal agencies to study trade policies and assess trade relationships with key partners, including China, Canada, and Mexico. The memorandum is expected to focus on addressing persistent trade deficits and investigating unfair trade and currency practices.

    Specific directives include examining China’s compliance with the 2020 trade deal and reviewing the US-Mexico-Canada Agreement, which is up for re-evaluation in 2026. These steps suggest Trump is prioritizing groundwork over immediate action, but the spotlight remains on the possibility of future tariffs.

    Technically, immediate focus is now on 1.4301 support in USD/CAD’s with today’s sharp reversal. Firm break there would at least bring deeper pull back to 55 D EMA (now at 1.4194). There is prospect of even deeper fall to 38.2% retracement of 1.3418 to 1.4484 at 1.4077 should CPI and retail sales data from Canadian Dollar later in the week are Loonie supportive. Or, at least, Canadian Dollar could have a breather until Trump’s tariffs are really imposed.

    In Europe, at the time of writing, FTSE is extending its record run and rises 0.12%. DAX is down -0.03% while CAC is up 0.02%. UK 10-year yield is up 0.041 at 4.701. Germany 10-year yield is up 0.016 at 2.548. Earlier in Asia, Nikkei rose 1.17%. Hong Kong HSI rose 1.75%. China Shanghai SSE rose 0.08%. Singapore Strait TImes fell -0.07%. Japan 10-year JGB yield fell -0.010 to 1.197.

    ECB’s Holzmann: January rate cut not as certain with elevated inflation risks

    Austrian ECB Governing Council member Robert Holzmann expressed skepticism over a potential rate cut at ECB’s upcoming January meeting. In an interview with Politico, Holzmann stated, “A cut is not a foregone conclusion for me at all,” emphasizing his commitment to approaching the discussion with an “open mind.”

    Holzmann highlighted that ECB decisions are fundamentally data-driven and noted that inflation remained “well above” 2% in December, with January figures expected to reflect similar levels. He cautioned that “cutting interest rates when inflation rises faster than anticipated, even temporarily, risks hurting credibility.”

    As a known policy hawk, Holzmann also revealed increased doubts about inflation settling around ECB’s 2% target by the end of the year. He cited unexpected developments since the December decision, including faster-than-expected depletion of gas reserves due to colder weather, the effective closure of the Ukraine gas transit, and the risks of persistently high energy prices.

    China maintains LPR as offshore Yuan recovers ahead of key support

    China’s central bank maintained its benchmark lending rates unchanged on Monday. The one-year loan prime rate was steady at 3.1%, while the over-five-year LPR, which influences mortgage rates, remained at 3.6%.

    The offshore Yuan strengthened notably against the Dollar, continuing to draw support from a a key long-term level. This comes despite market speculation that China might allow Yuan to weaken further to counteract the economic effects of new tariffs introduced under Donald Trump’s presidency.

    A weaker currency would bolster export competitiveness by making Chinese goods more affordable internationally. However, Beijing faces a dilemma: while a controlled depreciation could help exporters, an uncontrolled fall could lead to heightened volatility in domestic financial markets and reduced investor confidence.

    Acknowledging these risks, PBOC Governor Pan Gongsheng reaffirmed the central bank’s commitment to exchange rate stability last week, stating, “We will resolutely prevent the risk of the exchange rate overshooting, ensuring that the Yuan exchange rate remains generally stable at a reasonable, balanced level.”

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0247; (P) 1.0289; (R1) 1.0313; More…

    EUR/USD is still capped below 1.0435 resistance despite extending rebound from 1.0176. Intraday bias remains neutral and outlook stay bearish. Firm break of 1.0176 will resume whole fall from 1.1213. However, decisive break of 1.0435 will confirm short term bottoming, and turn bias back to the upside for stronger rebound to 38.2% retracement of 1.1213 to 1.0176 at 1.0572 first.

    In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Machinery Orders M/M Nov 3.40% -0.70% 2.10%
    00:01 GBP Rightmove House Price Index M/M Jan 1.70% -1.70%
    01:00 CNY 1-y Loan Prime Rate 3.10% 3.10% 3.10%
    01:00 CNY 5-y Loan Prime Rate 3.60% 3.60% 3.60%
    04:30 JPY Tertiary Industry Index M/M Nov -0.30% 0.10% 0.30% 0.10%
    04:30 JPY Industrial Production M/M Nov F -2.20% -2.30% -2.30%
    07:00 EUR Germany PPI M/M Dec -0.10% 0.30% 0.50%
    07:00 EUR Germany PPI Y/Y Dec 0.80% 1.10% 0.10%
    07:30 CHF PPI M/M Dec 0.00% 0.20% -0.60%
    07:30 CHF PPI Y/Y Dec -0.90% -1.50%
    15:30 CAD BoC Business Outlook Survey

     



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  • Greenback Eases Ahead of Trump’s Executive Actions, Bitcoin Takes Leads and Hits New Record

    Greenback Eases Ahead of Trump’s Executive Actions, Bitcoin Takes Leads and Hits New Record


    Dollar is trading slightly lower today as markets await Donald Trump’s inauguration as the 47th US President. Attention is focused on his inaugural speech, expected to confirm his policy priorities. However, the real market-moving event is likely to be the series of executive actions Trump has promised to enact immediately.

    Over 200 directives are anticipated, including legally binding executive orders and proclamations, with particular interest in measures affecting tariffs and deregulations in sectors like energy and cryptocurrencies.

    One key area of focus is Trump’s potential tariff policies, which would surely reshape US trade relationships with allies and adversaries and impact global market. Deregulation efforts, spanning traditional energy sectors to the fast-growing cryptocurrency industry, are also expected to influence investor sentiment.

    Meanwhile, Bitcoin has reached a new all-time high, reflecting the renewed bullish sentiment in cryptocurrencies. Technically, next near term target is 61.8% projection of 49008 to 108368 from 89127 at 125812. Outlook will stay bullish as long as 89127 support holds, even in case of pull back.

    While Trump’s inauguration and executive actions are dominating headlines, global markets are also preparing for several other key events. BoJ is widely expected to raise its policy rate. UK employment data will provide insight into the labor market’s response to the Autumn Budget. Inflation data from Canada and New Zealand will help shape monetary policy projections of BoC and RBNZ. PMI data from major economies will round out the week’s events.

    ECB’s Holzmann: January rate cut not as certain with elevated inflation risks

    Austrian ECB Governing Council member Robert Holzmann expressed skepticism over a potential rate cut at ECB’s upcoming January meeting. In an interview with Politico, Holzmann stated, “A cut is not a foregone conclusion for me at all,” emphasizing his commitment to approaching the discussion with an “open mind.”

    Holzmann highlighted that ECB decisions are fundamentally data-driven and noted that inflation remained “well above” 2% in December, with January figures expected to reflect similar levels. He cautioned that “cutting interest rates when inflation rises faster than anticipated, even temporarily, risks hurting credibility.”

    As a known policy hawk, Holzmann also revealed increased doubts about inflation settling around ECB’s 2% target by the end of the year. He cited unexpected developments since the December decision, including faster-than-expected depletion of gas reserves due to colder weather, the effective closure of the Ukraine gas transit, and the risks of persistently high energy prices.

    China maintains LPR as offshore Yuan recovers ahead of key support

    China’s central bank maintained its benchmark lending rates unchanged on Monday. The one-year loan prime rate was steady at 3.1%, while the over-five-year LPR, which influences mortgage rates, remained at 3.6%.

    The offshore Yuan strengthened notably against the Dollar, continuing to draw support from a a key long-term level. This comes despite market speculation that China might allow Yuan to weaken further to counteract the economic effects of new tariffs introduced under Donald Trump’s presidency.

    A weaker currency would bolster export competitiveness by making Chinese goods more affordable internationally. However, Beijing faces a dilemma: while a controlled depreciation could help exporters, an uncontrolled fall could lead to heightened volatility in domestic financial markets and reduced investor confidence.

    Acknowledging these risks, PBOC Governor Pan Gongsheng reaffirmed the central bank’s commitment to exchange rate stability last week, stating, “We will resolutely prevent the risk of the exchange rate overshooting, ensuring that the Yuan exchange rate remains generally stable at a reasonable, balanced level.”

    Technically, a short term top should be confirmed at 7.3694 in USD/CNH with today’s dip. But it’s early to call for bearish reversal as long as 55 D EMA (now at 7.2797) hits. Further rally remains in favor through 7.3745 (202 high) to resume the long term up trend.

    Nevertheless, firm break of 55 D EMA should bring deeper pull back to 38.2% retracement of 6.9709 to 7.3694 at 7.2172, which is close to 55 W EMA (now at 7.2097) even just as a correction to rise from 6.9709.

    From BoJ to inflation data and PMIs, global markets have more to focus on than Trump

    While the inauguration of Donald Trump dominates the headlines in US markets, global investors are turning their attention to a week packed with pivotal high-impact economic events that would provide crucial clues about the monetary policy paths of key economies.

    BoJ’s upcoming meeting is a top priority for global markets. After repeated signals from Governor Kazuo Ueda and other top officials, markets should be well-prepared for a 25bps rate hike, raising the policy rate to 0.50%. However, beyond the rate decision, the focus will shift to BoJ’s updated economic projections and policy guidance.

    While Ueda is expected to remain cautious about committing to a specific timeline for normalization, he may strike a more optimistic tone regarding wage growth, based on reports from branch managers. Additionally, BoJ could raise inflation forecasts in its quarterly outlook, both of which would add hawkish tones to the meeting.

    In the UK, attention is squarely on employment data, which will shed light on the labor market’s response to the government’s Autumn Budget. The markets are already pricing in over 75 basis points of BoE rate cuts in 2025. Meanwhile, IMF is projecting an even deeper 100bps reduction. The strength of the labor market will play a pivotal role in determining the scale of monetary easing this year, making this release a key driver for Sterling sentiment.

    Inflation data from Canada and New Zealand also hold significant importance. In Canada, BoC has indicated that the pace of rate reductions will slow, but uncertainty remains over the timing of pauses. A Reuters poll suggests an 80% chance of a 25bps cut on January 29, following December’s larger 50-bps move. CPI data will either reinforce or challenge this expectation.

    Meanwhile, New Zealand’s Q4 inflation report is expected to show further easing in price pressures, consistent with RBNZ’s forecasts. If the trend persists, RBNZ could deliver another 50bs rate cut at its February meeting

    Other data to watch this week include Germany’s ZEW Economic Sentiment Index and PMI reports from several major economies. These releases will provide additional context on global economic momentum and inform central bank decisions in the months ahead.

    Here are some highlights for the week:

    • Monday: Japan machine orders, tertiary industry index; Germany PPI; Swiss PPI; BoC business outlook survey.
    • Tuesday: New Zealand BNZ services; UK employment; Germany ZEW economic sentiment; Canada CPI.
    • Wednesday: New Zealand CPI; UK public sector net borrowing: Canada IPPI and RMPI.
    • Thursday: Japan trade balance; Canada retail sales; US jobless claims.
    • Friday: Australia PMIs; Japan CPI, PMIs, BoJ rate decision; Eurozone PMIs; UK PMIs; Canada new housing price index; US PMIs, US existing sales.

    EUR/USD Daily Outlook

    Daily Pivots: (S1) 1.0247; (P) 1.0289; (R1) 1.0313; More…

    EUR/USD recovers mildly today but stays in the middle of near term range above 1.0176. Intraday bias stays neutral and outlook remains bearish with 1.0435 resistance intact. On the downside, break of 1.0176 will resume the fall from 1.1213 and target 61.8% projection of 1.1213 to 1.0330 from 1.0629 at 1.0083. However, firm break of 1.0435 will confirm short term bottoming, and turn bias back to the upside for stronger rebound.

    In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Machinery Orders M/M Nov 3.40% -0.70% 2.10%
    00:01 GBP Rightmove House Price Index M/M Jan 1.70% -1.70%
    01:00 CNY 1-y Loan Prime Rate 3.10% 3.10% 3.10%
    01:00 CNY 5-y Loan Prime Rate 3.60% 3.60% 3.60%
    04:30 JPY Tertiary Industry Index M/M Nov -0.30% 0.10% 0.30% 0.10%
    04:30 JPY Industrial Production M/M Nov F -2.20% -2.30% -2.30%
    07:00 EUR Germany PPI M/M Dec -0.10% 0.30% 0.50%
    07:00 EUR Germany PPI Y/Y Dec 0.80% 1.10% 0.10%
    07:30 CHF PPI M/M Dec 0.00% 0.20% -0.60%
    07:30 CHF PPI Y/Y Dec -0.90% -1.50%
    15:30 CAD BoC Business Outlook Survey

     



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  • Global Markets Look Beyond Trump’s Inauguration as Local Drivers Take the Lead

    Global Markets Look Beyond Trump’s Inauguration as Local Drivers Take the Lead


    Global markets are buzzing in anticipation of Donald Trump’s inauguration on January 20, yet the latest developments suggest investors may already be looking past the immediate impact. Despite speculation surrounding Trump’s policies—particularly tariffs—various benchmarks and asset classes are charting their own directions based on localized drivers and monetary policy expectations.

    In the US, the strong bounce in major stock indexes owes something to hopes of expansive fiscal stimulus under Trump. However, a significant portion of the rally can be traced to an improving inflation outlook and the view that Fed remains on track to further monetary easing. Additionally, the lack of significant concern over tariffs impacting inflation suggests that investors may not see Trump’s trade policies as an immediate threat to the US economy.

    Meanwhile record-breaking runs in FTSE and DAX signal distinct optimism. UK investors are banking on additional BoE easing after disappointing GDP, retail sales, and CPI data highlighted ongoing struggles. Germany’s DAX is supported by ECB’s dovish leanings as well as hopes of a political turnaround after snap elections in Germany in February. Market enthusiasm for Europe clearly isn’t driven by any expectation of beneficial tariffs; rather, local factors are in control.

    Japan, not a prime target of Trump’s tariff rhetoric, saw Nikkei weighed down by intensifying speculation about a looming Bank of Japan rate hike. This dynamic stands in sharp contrast to the overarching risk-on atmosphere elsewhere.

    In the currency markets, Yen emerged as the strongest performer last week, propelled by bets on BoJ action. Australian and New Zealand dollars followed suit, aided by the broader risk-on mood. On the weaker side of the spectrum, Canadian Dollar was the worst-performing currency, finally something reflecting potential vulnerability to Trump’s trade policies as BoC may have underestimated the economic risks posed by tariffs. Sterling also underperformed while Dollar was similarly subdued. Euro and Swiss Franc ended the week in middle positions.

    Risk Appetite Returns: DOW, S&P 500, NASDAQ End Week with Solid Gains

    Risk-on sentiment returned to US equity markets this week, with all three major indexes posting strong gains. DOW surged 3.69% for the week, S&P 500 rose 2.91%, and NASDAQ climbed 2.45%. Technically, the robust rebound eased fears of an imminent bearish reversal, affirming that recent pullbacks were likely just corrections within a broader uptrend.

    Market attention was drawn to Fed Governor Christopher Waller’s remarks at CNBC’s “Squawk on the Street”, interpreted by some as a dovish tilt. He expressed confidence that the inflationary stickiness seen in 2024 will begin to “dissipate” in 2025 and described himself as “more optimistic” about inflation than many of his Fed colleagues. Waller indicated the potential for three or four 25bps rate cuts this year, contingent on favorable inflation data.

    However, it should emphasized that Waller also tempered this optimism with caution, acknowledging that “If the data doesn’t cooperate, then you’re going to be back to two, maybe even one”.

    Waller left the door open for a rate cut in March, remarking that such a move “cannot be completely ruled out.” However, the message underlying was still consistent with market expectation that May or June might be more likely.

    Overall, despite the dovish interpretation by some, Waller’s comments suggest a flexible, data-dependent approach rather than a clear commitment to easing. The comments also largely aligned with market pricing.

    Nonetheless, inflation data for December did provide some relief. While, headline CPI rose from 2.7% to 2.9% yoy, core CPI edged down from 3.3% to 3.2%. This incremental progress reduces pressure on the Fed to maintain restrictive policy for an extended period. More importantly, that makes a return to tightening less likely.

    Futures pricing didn’t change much over the week, reflecting a 97.9% chance that Fed will hold rates steady at 4.25–4.50% at the January meeting, with a 72.4% chance of another hold in March. The probability of a May rate cut stands at 44%, rising to 66% by June. By year-end, markets still project a 52.1% chance of just one rate cut, reducing rates to 4.00–4.25%.

    Technically, DOW’s break of 55 D EMA (now at 43038.33) suggests that pullback from 45073.63 has completed at 41844.98 already. The medium term channel holds intact, as well as the up trend. Whether DOW is ready for another record run through 45073.63 would depend on the momentum of the next rise.

    But even in case that corrective pattern from 45073.63 is going to extend with another falling leg, downside looks more likely than not to be contained by cluster support level at around 40k, with 39889.05 resistance turned support, and 38.2% retracement of 32327.20 to 45073.63 at 40204.49.

    NASDAQ’s price actions from 20204.58 are also clearly corrective looking so far, with notable support from 18671.06 resistance turned support. With this support intact, larger up trend should resume through 20204.58 sooner rather than later.

    Yields and Dollar Index Form Short-Term Top With Improved Risk Sentiment

    Improved risk sentiment in US markets has triggered pullback in both 10-year Treasury yield and the Dollar Index, suggesting a temporary pause in their recent rally.

    Technically, a short term top is likely in place at 4.809 in 10-year yield, considering that D MACD has crossed below signal line. More consolidations should follow in the near term below 4.809, with risk of deeper pull back to 55 D EMA (now at 4.434). But outlook will continue to stay bullish as long as 38.2% retracement of 3.603 to 4.809 at 4.348 holds. Another rally through 4.809 to retest 4.997 high is expected, though breaking the psychological 5% level may prove challenging without stronger momentum.

    Dollar Index could have formed a short term top at 110.17 too, just ahead of 61.8% projection of 100.15 to 108.87 from 105.42 at 110.31, with D MACD crossed below signal line. Deeper retreat could be seen to 108.07 resistance turned support, or even further to 55 D EMA (now at 107.15). But near term outlook will stay bullish as long as 38.2% retracement of 100.15 to 110.17 at 106.34 holds. Firm break of 110.17 will resume the rally to 100% projection at 113.34.

    FTSE and DAX Surge to Record Highs

    Risk-on sentiment was also evident in the European equity markets, with FTSE 100 and DAX surged to new record highs. The optimism was fueled by expectations of rate cuts, positive economic projections, and hopes for political stability.

    In the UK, a trio of softer economic data—GDP, retail sales, and CPI—reinforced market expectations for BoE easing. Markets now anticipate more than 75 basis points of rate cuts throughout 2025, compared to just 50 basis points priced in the prior week. A 25bps rate cut in February is now universally expected.

    Supporting this sentiment, IMF upgraded its UK growth forecast for 2025 by 0.1 percentage points to 1.6%, making the UK the third-fastest-growing G7 economy after the US and Canada. IMF attributed this optimism to increased government investment, improved household finances, and anticipated rate cuts.

    That’s a strong nod to the Labour government despite wide criticism on its Autumn Budget. Meanwhile, IMF also projects BoE’s headline rate to fall from 4.75% to 3.75% by year-end.

    Technically, FTSE’s break of 8474.41 confirmed that triangle consolidation from there has completed at 8002.34, and larger up trend has resumed. Next target is 61.8% projection of 7404.08 to 8474.41 from 8002.34 at 8663.80.

    In Germany, DAX surged to new record on improving risk appetite and expectations of continued ECB easing.

    ECB’s December meeting minutes leaned towards the dovish side, and revealed discussions about a more aggressive 50-basis-point cut. The central bank ultimately favored a measured approach, with consensus on a more controlled pace of easing, to allow for checkpoints to confirm that disinflation remains on track.

    While IMF downgraded its 2025 growth forecasts for Germany and France, the outlook still points to modest recovery. Germany, previously expected to grow by 0.8%, is now forecasted to expand by just 0.3%, marking a slow rebound from two years of contraction. France’s growth forecast was also reduced by 0.3 percentage points to 0.8%. The positive side of the forecasts is that both economies are expected to regain some footing this year.

    It should also be noted that markets are probably pricing in a degree of optimism around the February 23 snap elections, which could lead to greater political stability and more consistent economic policies in Germany.

    Technically, DAX should now be on track to 100% projection of 14630.21 to 18892.92 from 17024.82 at 21287.52 next.

    Nikkei Weighed by BoJ Hike Risks, SSE Struggles to Rebound

    Investor sentiment in Asia, however, was much less optimistic, with Japan facing headwinds from growing expectations of Bank of Japan policy normalization, while China’s economic recovery struggles to inspire confidence amid external pressures.

    In Japan, speculation over a rate hike at the upcoming January 23–24 BoJ meeting has intensified. Governor Kazuo Ueda and Deputy Governor Ryozo Himino have repeatedly hinted at the possibility of policy tightening, with analysts interpreting their comments as preparation for market adjustments.

    Additionally, reports suggest BoJ is likely to raise its inflation forecasts in its quarterly outlook, highlighting upside risks fueled by the persistently weak Yen and elevated import costs. Internally, BoJ policymakers believe that stabilizing inflation expectations around the 2% target could allow short-term rates to rise as high as 1% without hindering economic growth.

    Traders are pricing in an 80% chance of a rate hike from 0.25% to 0.50%.

    Nikkei weakened for the week on expectations of BoJ’s normalization move, but stayed above 37651.07 support.

    Outlook is unchanged that price action from 42426.77 are developing in to a medium term three wave consolidation pattern, with rebound from 31156.11 as the second leg.

    For now, another rally cannot be ruled out, but strong resistance should emerge below 42426.77 to limit upside. Firm of 37651.07 support will in turn indicate that the third leg has likely commenced, and bring deeper fall to 35253.43 support and below

    In China, Shanghai SSE Composite struggled to generate meaningful gains other than a mild recovery.

    China’seconomy grew 5.4% yoy in Q4, lifting full-year GDP growth to 5.0%, matching the government’s target.Meanwhile, market rumors suggest Beijing is hesitant to use Yuan depreciation as a tool to counter tariffs from a second Trump presidency. Analysts believe sharp currency depreciation, as seen during Trump’s first term, could harm the struggling economy more than it would help.

    However, market confidence remains subdued, and the stock market recovery appeared technical rather than driven by fundamentals.

    SSE found support at the 50% retracement level of 2,635.09 to 3,674.40 at 3154.74, but remained capped below 55 D EMA (now at 3279.16).

    Risk remains on the downside for the near term for SSE. Break of 3140.90 will extend the corrective fall from 3674.40 to 61.8% retracement at 3032.11. Nevertheless, sustained break above the 55 D EMA will indicate that stronger near term rebound is underway back towards 3494.86 resistance.

    USD/CAD Weekly Outlook

    USD/CAD’s late break of 1.4466 resistance confirms larger up trend resumption. Initial bias is back on the upside this week for 1.4667/89 long term resistance zone. For now, outlook will stay bullish as long as 1.4302 support holds, in case of retreat.

    In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Decisive break there will confirm long term up trend resumption. Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

    In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as long as 1.3418 support holds.



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  • Commodity Currencies Slide as Markets Brace for Trump’s Tariff Moves

    Commodity Currencies Slide as Markets Brace for Trump’s Tariff Moves


    Sharp selloff in commodity currencies against Dollar is dominating market action as the US session unfolds. While broader trading remains subdued, the sudden weakness in these currencies appears tied to trader caution ahead of President-elect Donald Trump’s inauguration on Monday. Concerns over tariff policies could be the main driver of the moves, in the absence of other clear fundamental catalysts.

    Canada, Mexico, and China are widely speculated to be high on Trump’s tariff agenda. The tariffs may serve as leverage to address issues like fentanyl exports or re-exports impacting the United States.

    However, the specifics of Trump’s strategy remain a “wild card.” Possible scenarios include blanket tariffs on major trading partners, sector-specific measures, immediate enactment via executive orders, or staggered monthly increases. Or, it could be a mix of these approaches.

    For the week, Sterling remains the weakest performer, followed by Loonie and Dollar. On the other hand, Japanese Yen leads gains with the Aussie and Swiss Franc rounding out the top three. Kiwi and Euro are trading in mixed positions. However, the current selling pressure on commodity currencies could alter these rankings as the week comes to the close.

    ECB’s Nagel: Should avoid rushing monetary policy normalization

    German ECB Governing Council member Joachim Nagel in an interview with Platow Brief, highlighted persistent services inflation and a “high level of uncertainty,” referencing concerns about global trade dynamics as Donald Trump prepares to return to the White House next week.

    “We should therefore not rush into anything on the path to monetary policy normalization,” Nagel stated.

    Meanwhile, he defended the ECB’s discussions of a more aggressive 50-basis-point rate cut during its December meeting, noting that such debates are a normal part of policy deliberations.

    ECB’s Elderson: Rate setting is a question of speed and magnitude

    ECB Executive Board member Frank Elderson emphasized the delicate balance the central bank must strike in setting interest rates during an interview with Het Financieele Dagblad.

    He warned, “If we lower the interest rate too quickly, dialling down services inflation sufficiently could become complicated.” At the same time, he acknowledged the risks of maintaining rates too high for too long, which could lead to undershooting ECB’s inflation target.

    “The markets don’t think we’ve finished easing now that we’re at 3% and I don’t think we have, either,” he added. “Setting interest rates is ultimately a question of how fast and how much.”

    Eurozone CPI finalized at 2.4% in Dec, core CPI at 2.7%

    Eurozone inflation was finalized at to 2.4% yoy in December, up from November’s 2.2% yoy. Core CPI, which excludes energy, food, alcohol, and tobacco, held steady at 2.7% yoy. Services made the largest contribution to the annual headline inflation rate (+1.78 percentage points), followed by food, alcohol, and tobacco (+0.51 pp), non-energy industrial goods (+0.13 pp), and energy (+0.01 pp).

    In the broader EU, inflation was finalized at 2.7% yoy, up from 2.5% yoy in November. Ireland recorded the lowest annual inflation rate at 1.0%, followed by Italy at 1.4%, with Luxembourg, Finland, and Sweden at 1.6% each. On the other end, Romania (5.5%), Hungary (4.8%), and Croatia (4.5%) posted the highest inflation rates.

    Across the EU, annual inflation rose in 19 member states, remained unchanged in one, and fell in seven compared to the previous month.

    UK retail sales fall -0.3% mom in Dec, down -0.8% qoq in Q4

    UK retail sales volumes declined by -0.3% mom in December, significantly missing expectations for 0.4% mom increase. The drop was primarily driven by reduced supermarket sales, partially offset by a rebound in non-food stores such as clothing retailers, which saw recovery after recent declines.

    On a quarterly basis, sales volumes in Q4 fell -0.8% qoq compared with Q3, highlighting a slowdown in consumer activity. However, year-on-year, Q4 sales volumes rose 1.9% compared to the same period in 2023.

    China’s Q4 GDP growth surpasses expectations, full-year growth hits 5% target

    China’s economy ended 2024 on a strong note, with GDP expanding by 5.4% yoy in Q4, beating market expectations of 5.0%. This marked a significant acceleration from 4.6% in Q3, 4.7% in Q2, and 5.3% in Q1. The robust Q4 performance pushed full-year GDP growth to 5.0%, aligning with the government’s target of “around 5%.”

    December’s economic indicators also showed positive momentum. Industrial production surged 6.2% yoy, exceeding the forecast of 5.4%. Retail sales grew by 3.7% yoy, marginally beating expectations of 3.5%. However, fixed asset investment lagged, rising only 3.2% year-to-date, just below the 3.3% forecast.

    Despite the upbeat data, concerns remain. Statistics Bureau spokesperson Fu Linghui acknowledged lingering weakness in consumer spending and cautioned that in 2025, the “unfavorable impact of external factors may deepen.”

    BNZ PMI at 45.9: NZ manufacturing completes 2024 fully in contraction

    New Zealand’s BNZ Performance of Manufacturing Index rose marginally in December, increasing from 45.2 to 45.9. While this marks a slight improvement, the sector remains in a prolonged contraction, far below the long-term average of 52.5 since the survey’s inception. December also marked the 22nd consecutive month of contraction, a record-breaking trend for the PMI.

    Catherine Beard, Director of Advocacy at BusinessNZ, noted that 2024 was unprecedented, as it was the first year in the survey’s history with all 12 months in contraction. By comparison, the next closest period was 2008 during the Global Financial Crisis, which saw nine months of contraction.

    Breaking down the December data, production dropped further, slipping from 42.3 to 41.9. Employment showed modest improvement, rising from 46.9 to 47.6, while new orders also edged up from 44.5 to 46.5. However, finished stocks fell significantly, declining from 49.2 to 45.9, and deliveries dipped slightly below the neutral 50 mark, moving from 50.0 to 49.8.

    USD/CAD Mid-Day Outlook

    Daily Pivots: (S1) 1.4336; (P) 1.4370; (R1) 1.4427; More…

    Immediate focus is now on 1.4466 resistance with current strong rally ins USD/CAD. Decisive break there will resume larger up trend to 1.4667/89 long term resistance zone. On the downside, break of 1.4279 support will bring deeper correction. But downside should be contained by 55 D EMA (now at 1.4187) to bring rebound.

    In the bigger picture, up trend from 1.2005 (2021) is in progress for retesting 1.4667/89 key resistance zone (2020/2015 highs). Medium term outlook will remain bullish as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:30 NZD Business NZ PMI Dec 45.9 45.5
    02:00 CNY GDP Y/Y Q4 5.40% 5.00% 4.60%
    02:00 CNY Industrial Production Y/Y Dec 6.20% 5.40% 5.40%
    02:00 CNY Retail Sales Y/Y Dec 3.70% 3.50% 3.00%
    02:00 CNY Fixed Asset Investment (YTD) Y/Y Dec 3.20% 3.30% 3.30%
    07:00 GBP Retail Sales M/M Dec -0.30% 0.40% 0.20% 0.10%
    09:00 EUR Current Account (EUR) Nov 27.0B 28.0B 25.8B 30.2B
    10:00 EUR Eurozone CPI Y/Y Dec F 2.40% 2.40% 2.40%
    10:00 EUR Eurozone CPI Core Y/Y Dec F 2.70% 2.70% 2.70%
    13:30 USD Building Permits Dec 1.48M 1.46M 1.49M
    13:30 USD Housing Starts Dec 1.50M 1.32M 1.29M
    14:15 USD Industrial Production M/M Dec 0.90% 0.30% -0.10% 0.20%
    14:15 USD Capacity Utilization Dec 77.60% 77.10% 76.80% 77.00%

     



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  • Cautious Trade Dominates as Dollar Holds Steady, Yen Leads, Gold Jumps

    Cautious Trade Dominates as Dollar Holds Steady, Yen Leads, Gold Jumps


    Activity in the forex markets has turned relatively subdued today, with no clear trend emerging as traders shift into a cautious stance. With no top-tier economic data scheduled for the rest of the week, attention is turning to the impending inauguration of US President-elect Donald Trump next Monday. The spotlight is squarely on his anticipated tariff policies, which could have profound implications for global trade and economic stability.

    Yen holds its position as the strongest currency of the day, buoyed by increasing speculation of a potential rate hike from the Bank of Japan at its meeting next week. BoJ Governor Kazuo Ueda’s consistent messaging has reinforced market expectations, with traders pricing in a higher likelihood of policy tightening.

    Swiss Franc ranks second best, benefiting from decline in European benchmark yields. Dollar is the third-best performer, continuing to consolidate against its peers. The greenback’s movements were unaffected by slightly worse-than-expected US jobless claims and retail sales data.

    On the downside, New Zealand Dollar has overtaken Sterling as the weakest currency of the day. Pound remains under pressure following disappointing GDP data but has not faced aggressive selling. Meanwhile, Australian Dollar is the third weakest, while Euro and Canadian Dollar trade in mixed fashion.

    Technically, Gold’s rally this week suggests that choppy rebound from 2536.67 is actually still in progress. Further rise is now in favor through 2725.95 resistance in the near term. However, this rise is seen as the second leg of the corrective pattern from 2789.92. Hence, upside should be below this high. Break of 55 D EMA (now at 2643.87) will argue that the third leg has started to 2536.67 support and below.

    US initial jobless claims falls to 217k vs exp 210k

    US initial jobless claims rose 14k to 217k in the week ending January 11, above expectation of 210k. Four-week moving average of initial claims fell -750 to 213k.

    Continuing claims fell -18k to 1859k in the week ending January 4. Four-week moving average of continuing claims fell -1k to 1867k.

    US retail sales rise 0.4% mom in Dec, ex-auto sales up 0.4% mom

    US retail sales rose 0.4% mom to USD 729.2B in December, below expectation of 0.5% mom. Ex-auto sales rose 0.4% mom to USD 586.3B, below expectation of 0.5% mom. Ex-gasoline sales rose 0.4% mom to USD 676.8B. Ex-auto & gasoline sales rose 0.4% mom to USD 533.9B.

    Total sales for the October through December period were up 3.7% from the same period a year ago.

    ECB Minutes: Gradual easing essential to monitor disinflation check points

    ECB’s December 11–12 meeting minutes noted that while the 25 bps rate cut decided at the meeting was widely supported, some members argued for a more aggressive 50 bps reduction.

    Some policymakers contended that a larger rate cut would have better addressed Eurozone’s weakening economic projections, with one noting that “successive projection exercises have shown increasing downside risks to growth.”

    However, the majority concurred that a smaller, measured cut aligned with the “controlled pace of easing” and provided a “sense of the direction” of the path of interest rates.

    The minutes emphasize while projections were conditional on a further rate cut in January, the meeting underscored that “data dependency precluded any foregone conclusions.”

    The minutes also stated that the “measured pace of interest rate cuts” was essential to ensure that ECB could “pass critical checkpoints to verify disinflation remains on track.” Furthermore, it was highlighted that optionality must be preserved to address risks that could derail inflation stabilization, including geopolitical tensions, global trade disruptions, and energy price volatility.

    Nevertheless, “if the baseline projection for inflation is confirmed over the next few months and quarters,” the minutes noted, a “gradual dialing back of policy restrictiveness” would be appropriate.

    Eurozone goods exports fall -1.6% yoy in Nov, imports down -1.0% yoy

    Eurozone goods exports fell -1.6% yoy to EUR 248.3B in November. Good imports fell -1.0% yoy to EUR 231.9B. Trade balanced showed a EUR 16.4B surplus. Intra-Eurozone trade fell -7.0% yoy to EUR 214.8B.

    In seasonally adjusted term, goods exports rose 3.2% mom to EUR 240.6B.Goods imports rose 0.7% mom to EUR 227.8B. Trade balance widened from October’s EUR 7.0B to EUR 12.9B, larger than expectation of EUR 7.2B. Intra-Eurozone trade fell -1.7% mom to EUR 210.4B.

    UK GDP grows only 0.1% mom in Nov, with mixed sector performance

    UK’s economy posted modest growth in November, with GDP increasing by 0.1% mom, but slightly missing market expectations of 0.2%. Nevertheless, this marked a positive turnaround from the -0.1% mom contraction in October.

    Sectoral performance was mixed, with services, the largest contributor to the economy, inching up by 0.1% mom, while production fell by -0.4% mom. Construction activity, however, provided a brighter spot, rising 0.4% mom during the month.

    Despite November’s modest gains, the broader economic picture remains subdued. Over the three months to November 2024, real GDP showed no growth compared to the three months to August. Services, which account for a significant portion of the UK’s output, stagnated over this period. Production output contracted by -0.7%, offsetting the 0.2% growth seen in construction.

    BoJ’s Ueda reiterates rate hike debate for next week’s policy meeting

    BoJ Governor Kazuo Ueda indicated today, for the second time this week, that the central bank will “debate whether to raise interest rates” at its upcoming January 23-24 policy meeting. This marks the second time in this week that Ueda has emphasized

    Ueda’s comments come as BoJ prepares its new quarterly economic report, which will serve as the basis for its policy decision. While the Governor has not committed to a specific outcome, the repeated message signals that a rate hike is a plausible scenario, barring any significant market shocks tied to the January 20 inauguration of U.S. President-elect Donald Trump.

    Market sentiment, nevertheless, remains divided on the timing of the anticipated hike. A recent poll conducted between January 8-15 shows that 59 out of 61 economists expect BoJ to raise rates to 0.50% by the end of March. Yet, only 20 foresee the move occurring at this month’s meeting.

    Japan’s PPI holds steady at 3.8% as import prices turn positive

    Japan’s PPI held steady at 3.8% yoy in December, meeting market expectations and maintaining the previous month’s pace. Key drivers included a sharp 31.8% yoy rise in agricultural goods prices, fueled by soaring rice costs.

    Energy costs also contributed significantly, with electric power, gas, and water prices climbing 12.9% year-on-year. This uptick comes as the government phases out subsidies designed to mitigate rising utility and gasoline prices.

    Yen-based import prices turned positive, rising 1.0% yoy after three months of declines. While modest, this reversal underscores the lingering effects of Yen depreciation, which was recorded at -0.1% mom.

    Australia’s employment grows 56.3k in Dec, showing continuous resilience

    Australia’s labor market displayed resilience in December as employment surged by 56.3k, significantly exceeding expectations of a 15.0k increase. Number of unemployed people also rose by 10.3k, contributing to a slight uptick in the unemployment rate from 3.9% to 4.0%, in line with forecasts.

    Participation rate climbed to a record high of 67.1%, up from 67.0%, reflecting an expanding labor force. Additionally, employment-to-population ratio rose by 0.1 percentage point to a new peak of 64.5%, showcasing the labor market’s capacity to absorb more workers. Monthly hours worked increased by 0.5% mom, equivalent to 10 million additional hours.

    This data supports the view that the labor market’s earlier signs of easing have stabilized in the second half of 2024. Robust employment growth, consistent levels of average hours worked, and unchanged or lower levels of labor underutilization compared to a year ago affirm the ongoing strength of the job market.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0248; (P) 1.0302; (R1) 1.0344; More…

    EUR/USD is still engaged in consolidations above 1.0176 and intraday bias stays neutral. With 1.0435 resistance intact, outlook remains bearish and further decline is expected. On the downside, break of 1.0176 will resume the fall from 1.1213 and target 61.8% projection of 1.1213 to 1.0330 from 1.0629 at 1.0083. However, considering bullish convergence condition in 4H MACD, firm break of 1.0435 will confirm short term bottoming, and turn bias back to the upside for stronger rebound.

    In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY PPI Y/Y Dec 3.80% 3.80% 3.70% 3.80%
    00:00 AUD Consumer Inflation Expectations Jan 4.00% 4.20%
    00:01 GBP RICS Housing Price Balance Dec 28% 28% 25%
    00:30 AUD Employment Change Dec 56.3K 15.0K 35.6K 28.2K
    00:30 AUD Unemployment Rate Dec 4.00% 4.00% 3.90%
    07:00 EUR Germany CPI M/M Dec F 0.50% 0.40% 0.40%
    07:00 EUR Germany CPI Y/Y Dec F 2.60% 2.60% 2.60%
    07:00 GBP GDP M/M Nov 0.10% 0.20% -0.10%
    07:00 GBP Industrial Production M/M Nov -0.40% 0.10% -0.60%
    07:00 GBP Industrial Production Y/Y Nov -1.80% -1.00% -0.70%
    07:00 GBP Manufacturing Production M/M Nov -0.30% 0.20% -0.60%
    07:00 GBP Manufacturing Production Y/Y Nov -1.20% -0.30% 0.00%
    07:00 GBP Goods Trade Balance (GBP) Nov -19.3B -18.0B -19.0B -19.3B
    10:00 EUR Eurozone Trade Balance (EUR) Nov 12.9B 7.2B 6.1B 7.0B
    12:30 EUR ECB Meeting Accounts
    13:15 CAD Housing Starts Y/Y Dec 231K 250K 262K 267K
    13:30 USD Initial Jobless Claims (Jan 10) 217K 210K 201K 203K
    13:30 USD Retail Sales M/M Dec 0.40% 0.50% 0.70% 0.80%
    13:30 USD Retail Sales ex Autos M/M Dec 0.40% 0.50% 0.20%
    13:30 USD Import Price Index M/M Dec 0.10% -0.10% 0.10%
    13:30 USD Philadelphia Fed Manufacturing Jan 44.3 -8.5 -16.4
    15:00 USD NAHB Housing Market Index Jan 47 46
    15:00 USD Business Inventories Nov 0.10% 0.10%
    15:30 USD Natural Gas Storage -260B -40B

     



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  • Dollar Weakens on Core Inflation Relief, But Bullish Bias Holds

    Dollar Weakens on Core Inflation Relief, But Bullish Bias Holds


    Dollar extended its near-term pullback in early trading after core inflation data for December came in slightly below expectations, offering a degree of relief to traders and investors. Treasury yields also retreated, with the 10-year yield falling back below the 4.7% mark.

    Core CPI rose by 3.2% yoy, down from 3.3%, a result that eased fears of renewed inflationary pressures forcing Fed’s hand back into tightening. While core inflation remains clearly elevated, the data at least suggests that pressures are not intensifying enough to alter Fed’s loosening bias, with pauses in between moves.

    Fed fund futures now show 97.3% chance of a hold at the January FOMC meeting, a decision that appears still firmly priced in. Meanwhile, the odds of a rate cut in May have rebounded to 49%, up from 36% the previous day. June remains the most likely timing for a rate cut, with markets assigning nearly 70% probability. This aligns with expectations that Fed might deliver only one rate reduction in 2025.

    In forex markets, Dollar is the worst performer of the day so far. Canadian Dollar and Swiss Franc also rank among the weaker currencies. On the other hand, Japanese Yen is leading gains, bolstered by comments from BoJ officials that have reintroduced the possibility of a rate hike at the January meeting. Australian Dollar and New Zealand Dollar also posted solid gains, supported by improved risk sentiment. Euro and Sterling are trading with mixed momentum in middle positions.

    From a technical perspective, while the Dollar’s pullback has extended, it remains above key support levels against major counterparts. EUR/USD is capped below 1.0435 resistance, GBP/USD below 1.2486, AUD/USD below 0.6301, and USD/CHF above 0.9007 support. As long as these levels hold, the Dollar’s broader bullish trend remains intact, and the current movement is viewed as a consolidation phase rather than a reversal.

    US CPI jumps to 2.9% in Dec, core ticks down to 3.2%

    US CPI rose by 0.4% mom in December, surpassing expectations of 0.3% mom and marking an acceleration from the prior month’s 0.3% mom increase. Meanwhile, core CPI, which excludes the more volatile food and energy components, rose by a more subdued 0.2% mom, in line with market expectations but down from the 0.3% mom recorded in November.

    Energy prices were the primary driver, rising 2.6% mom on the month and accounting for over 40% of the headline increase. Food prices also contributed to inflationary pressure, advancing by 0.3% mom.

    On an annual basis, headline inflation climbed to 2.9% yoy, meeting consensus forecasts and up from November’s 2.7% yoy. Core inflation, however, slowed to 3.2% yoy, slightly below expectations of 3.3% yoy, indicating some easing in underlying price pressures. Notably, energy prices declined by -0.5% yoy, while food prices remained elevated at 2.5% yoy.

    Eurozone industrial production rises 0.2% mom in Nov, EU up 0.1% mom

    Eurozone industrial production edged up by 0.2% mom in November, falling short of 0.3% mom consensus forecast. While the overall increase suggests resilience in the industrial sector, the performance was uneven across categories. Production rose by 1.5% for durable consumer goods and 1.1% for energy, highlighting strong demand in these areas. Intermediate and capital goods also posted gains of 0.5% each, while non-durable consumer goods saw a marginal uptick of 0.1%.

    Across the broader EU, industrial production grew by just 0.1% on the month. The highest monthly increases were recorded in Belgium (+8.7%), Malta (+7.1%) and Lithuania (+4.3%). The largest decreases were observed in Ireland (-5.8%), Luxembourg (-3.9%) and Portugal (-3.4%).

    ECB’s Guindos and Villeroy affirm progress on disinflation

    ECB Vice President Luis de Guindos highlighted today that disinflation in the Eurozone is “well on track,” reinforcing optimism about the region’s progress toward price stability. While December’s inflation rose to 2.4%, Guindos noted that this increase was anticipated and aligned with ECB’s projections. Domestic inflation remains elevated, but recent easing signals have provided some relief.

    Guindos cautioned, however, that risks remain high. “The high level of uncertainty calls for prudence,” he said, referencing global trade frictions that could fragment the global economy further. He also warned about the fiscal policy challenges to weigh on borrowing costs and renewed geopolitical tensions to destabilize energy markets.

    Despite weak near-term economic outlook, Guindos expressed cautious optimism, stating, “The conditions are in place for growth to strengthen over the projection horizon, although less than was forecast in previous rounds.”

    Meanwhile, French ECB Governing Council member François Villeroy de Galhau echoed a positive sentiment, emphasizing progress against inflation.

    “We have practically won the battle against inflation,” he said, projecting that it “makes sense for interest rates to reach 2% by the summer.” However, Villeroy also highlighted risks to France’s 2025 growth forecast of 0.9%, acknowledging that while downside risks persist, a recession remains unlikely.

    ECB’s Lane expects service inflation to ease

    ECB Chief Economist Philip Lane noted during an event today that services inflation will “come down quite a bit” in the coming months. He attributed much of the anticipated moderation to a slowdown in wage growth. Additionally, firms are reportedly experiencing reduced cost pressures, which should also contribute to easing price increases.

    Lane highlighted the challenges of providing a definitive future path for interest rates, citing significant uncertainties in the global economic environment, including escalating trade tensions.

    “From our point of view, saying here’s where we think the future rate path is going to be conveys a sense of certainty that we don’t feel,” Lane said, reinforcing the ECB’s cautious stance.

    On the topic of exchange rates and their influence on prices, Lane pointed out that while movements in the euro-dollar exchange rate can impact European prices over time, the short-term relationship is less predictable. He noted that in the early stages of a significant currency shift, much of the impact is “absorbed by firms.

    “The exchange rate, I think, over time plays a role,” Lane said. “But in terms of the month-by-month, quarter-by-quarter correlation between the exchange rate and import prices is not that stable.”

    UK CPI slows to 2.5% in Dec, services inflation down to 4.4%

    UK CPI slowed from 2.6% yoy to 2.5% yoy in December, below expectation of 2.7% yoy. Core CPI slowed from 3.5% yoy to 3.2% yoy, below expectation of 3.4% yoy.

    CPI goods annual rate rose from 0.4% yoy to 0.7% yoy, while CPI services annual rate fell from 5.0% yoy to 4.4% yoy.

    On a monthly basis, CPI rose by 0.3% mom, below expectation of 0.4% mom.

    BoJ’s Ueda signals rate hike on the table next week

    BoJ Governor Kazuo Ueda today provided further hints that the central bank may be considering a rate hike at its upcoming policy meeting.

    Ueda noted, “We are currently analyzing data thoroughly and will compile the findings in our quarterly outlook report. Based on that, we will discuss whether to raise interest rates at next week’s policy meeting and would like to reach a decision.”

    Ueda emphasized the significance of Japan’s wage outlook, which has recently been a key focus for policymakers. He pointed to encouraging signals from wage negotiations, which could bolster consumer spending and support BoJ’s inflation target.

    Additionally, Ueda remarked that the economic policies of the incoming US administration, coupled with domestic wage trends, would play a pivotal role in determining the timing of any rate adjustment.

    The governor’s remarks align closely with those of BoJ Deputy Governor Ryozo Himino, who earlier this week suggested that a rate hike was on the table.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0261; (P) 1.0286; (R1) 1.0333; More…

    EUR/USD’s recovery from 1.0176 extends higher today but stays below 1.0435 resistance. Intraday bias remains neutral while further decline is still expected. On the downside, break of 1.0176 will resume the fall from 1.1213 and target 61.8% projection of 1.1213 to 1.0330 from 1.0629 at 1.0083. However, considering bullish convergence condition in 4H MACD, firm break of 1.0435 will confirm short term bottoming, and turn bias back to the upside for stronger rebound.

    In the bigger picture, fall from 1.1274 (2023 high) should either be the second leg of the corrective pattern from 0.9534 (2022 low), or another down leg of the long term down trend. In both cases, sustained break of 61.8 retracement of 0.9534 to 1.1274 at 1.0199 will pave the way back to 0.9534. For now, outlook will stay bearish as long as 1.0629 resistance holds, even in case of strong rebound.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Money Supply M2+CD Y/Y Dec 1.30% 1.20% 1.20%
    07:00 GBP CPI M/M Dec 0.30% 0.40% 0.10%
    07:00 GBP CPI Y/Y Dec 2.50% 2.70% 2.60%
    07:00 GBP Core CPI Y/Y Dec 3.20% 3.40% 3.50%
    07:00 GBP RPI M/M Dec 0.30% 0.70% 0.10%
    07:00 GBP RPI Y/Y Dec 3.50% 3.70% 3.60%
    07:00 GBP PPI Input M/M Dec 0.10% 0.20% 0.00%
    07:00 GBP PPI Input Y/Y Dec -1.50% -1.30% -1.90% -2.10%
    07:00 GBP PPI Output M/M Dec 0.10% 0.10% 0.30% 0.40%
    07:00 GBP PPI Output Y/Y Dec 0.10% 0% -0.60% -0.50%
    07:00 GBP PPI Core Output M/M Dec 0.00% 0.00%
    07:00 GBP PPI Core Output Y/Y Dec 1.50% 1.60%
    10:00 EUR Eurozone Industrial Production M/M Nov 0.20% 0.30% 0.00% 0.20%
    13:30 CAD Manufacturing Sales M/M Nov 0.80% 0.50% 2.10% 1.30%
    13:30 CAD Wholesale Sales M/M Nov -0.20% -0.70% 1.00%
    13:30 USD CPI M/M Dec 0.40% 0.30% 0.30%
    13:30 USD CPI Y/Y Dec 2.90% 2.90% 2.70%
    13:30 USD CPI Core M/M Dec 0.20% 0.20% 0.30%
    13:30 USD CPI Core Y/Y Dec 3.20% 3.30% 3.30%
    13:30 USD Empire State Manufacturing Jan -12.6 -1.8 0.2
    15:30 USD Crude Oil Inventories -1.0M -1.0M
    19:00 USD Fed’s Beige Book

     



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  • Sterling Slumps Further as UK Bond Yields Hit Multi-Decade Highs

    Sterling Slumps Further as UK Bond Yields Hit Multi-Decade Highs


    Sterling’s selloff continues today as UK government bond yields surged to new highs, underlining deep market concerns over the nation’s fiscal outlook. 10-year Gilt yield breached 4.8%, a level not seen in 17 years, while 30-year yield climbed past 5.4%, marking its highest point in 27 years.

    At the core of this crisis are doubts about the government’s ability to meet its fiscal targets without resorting to higher taxes or additional spending cuts. Prime Minister Keir Starmer reaffirmed his commitment to the government’s fiscal rules, but his sidestepping of questions about austerity measures did little to calm investor nerves.

    Meanwhile, Chancellor Rachel Reeves is facing scrutiny for her economic strategies—although Starmer offered unwavering support, calling her performance “fantastic.” Traders appear unconvinced, with concerns that rising debt-servicing costs could strain public finances and weigh on the Pound for some time.

    Sterling will undergo crucial tests this week with the release of CPI data on Wednesday, followed by GDP figures on Thursday. While traders keep an eye on inflationary trends, a disappointing GDP print could intensify the bearish pressure on the currency. Many analysts worry that further signs of subdued economic growth, especially after the Autumn budget, could deepen the negative spiral surrounding the Pound’s outlook.

    Euro, too, faced pressure today as ECB officials reaffirmed their commitment to a gradual path of monetary easing. With Fed now expected to deliver only one—or potentially zero—rate cuts in 2025, the widening rate differential is undercutting Euro. However, the single currency found some support against Sterling and Swiss Franc, helped by ECB Chief Economist Philip Lane’s call for a “middle path” on rate decisions, that’s ” neither too aggressive nor too cautious.”

    Overall in the markets, Yen emerged as the strongest performer of the day, buoyed by risk aversion, despite rising yields in the US and Europe. Canadian Dollar and Aussie also posted gains. Meanwhile, Dollar and Kiwi maintained middle-ground positions, leaving the Swiss Franc, Euro, and Sterling as the weakest currencies, with the latter suffering the steepest declines due to heightened fiscal and economic concerns.

    Technically, EUR/CHF recovered ahead of 0.9329 support today, as sideway trading from 0.9440 continues. Further rise remains in favor through 0.9440 in the near term. Though strong resistance is expected from 38.2% retracement of 0.9928 to 0.9204 at 0.9481 to limit upside. Firm break of 0.9329, however, will indicate that the corrective rebound from 0.9204 has already completed.

    In Europe, at the time of writing, FTSE is down -0.66%. DAX is down -0.64%. CAC is down -0.60%. UK 10-year yield is up 0.0039 at 4.847. Germany 10-year yield is up 0.0089 at 2.582. Earlier in Asia, Japan was on holiday. Hong Kong HSI fell -1.00%. China Shanghai SSE fell -0.25%. Singapore Strait Times fell -0.26%.

    ECB’s Lane stresses the need for “middle path” on interest rates

    ECB Chief Economist Philip Lane, in an interview with Der Standard, highlighted that a “middle path” is essential to achieving the inflation target without stifling economic growth or allowing inflationary pressures to persist.

    Lane warned that if interest rates fall too quickly, it could undermine efforts to bring services inflation under control. On the other hand, keeping rates too high for too long risks that inflation could “materially fall below target”.

    “We think inflation pressure will continue to ease this year,” Lane stated, while adding that wage increases in 2025 are expected to moderate significantly, which could contribute to a softer inflationary environment.

    While acknowledging that the overall direction of monetary policy is clear, Lane underlined the complexities of striking the right balance of “being neither too aggressive nor too cautious.”

    ECB’s Vujcic: Gradual rate cuts justified amid elevated uncertainty

    Croatian ECB Governing Council member Boris Vujcic emphasized a cautious and deliberate approach to monetary policy adjustments during comments to Econostream Media.

    Vujcic stated that any acceleration in the pace of rate cuts would require a “significant departure” from the current economic projections, which he noted were being met by ongoing developments.

    “In circumstances where uncertainties are still elevated,” Vujcic explained, “it’s better to move gradually, and this is what we’re doing.”

    Vujcic also highlighted the ECB’s independence from other central banks, including the Fed. “We are not dependent on the Fed or any other central bank,” he remarked.

    His comments lent support to current market expectations for ECB’s policy path, which he described as “justified” in the near term.

    ECB’s Rehn: Restrictive monetary policy to end latest by mid-summer

    Finnish ECB Governing Council member Olli Rehn reaffirmed the central bank’s commitment to easing monetary policy as disinflation remains on track and the region faces a weakening growth outlook. Speaking with Bloomberg TV, Rehn stated that it “makes sense to continue rate cuts.”

    Rehn projected that ECB is likely to exit restrictive monetary territory “sometime in the spring-winter,” a timeline he clarified could range from January to June in Finland’s seasonal context.

    He added, “I would say at the latest by midsummer, we should have left restrictive territory.”

    Rehn also emphasized ECB’s independence in policy decisions, distancing it from the Fed’s approach.

    “The ECB is not the 13th federal district of the Federal Reserve System,” he noted, reinforcing that the bank’s decisions are guided solely by its mandate to maintain price stability within the Eurozone.

    China’s monthly trade surplus soars to USD 104.8B as exports jumps 10.7% yoy

    China’s trade data for December delivered a solid performance, reflecting resilience in exports and a surprising recovery in imports.

    Exports surged 10.7% yoy, significantly outpacing the 7.3% yoy expected growth and accelerating from November’s 6.7%.

    Shipments to major markets rose sharply, with exports to the US jumping 18.9% yoy, ASEAN by 15.6% yoy, and the EU by 8.7% yoy. Some analysts highlighted that front-loading ahead of the Lunar New Year and trade policy shifts under Donald Trump’s incoming administration likely bolstered the month’s figures.

    Imports grew 1.0% yoy, defying expectations of a -1.5% yoy decline and marking a rebound after consecutive contractions of -3.9% yoy in November and -2.3% yoy in October. This recovery was driven in part by increased purchases of commodities like copper and iron ore, with importers potentially capitalizing on lower prices.

    Regionally, imports from the US rose by 2.6% yoy, while ASEAN imports grew 5.4% yoy. However, imports from the EU fell by -4.9% yoy.

    Trade surplus widened from USD 97.4B in November to USD 104.8B in December, surpassing expectations of USD 100B.

    Looking ahead, markets will closely monitor China’s upcoming GDP figures, due for release on Friday. Expectations are for fourth-quarter growth to clock in at 5.0% yoy.

    GBP/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.2160; (P) 1.2241; (R1) 1.2291; More…

    Intraday bias in GBP/USD remains on the downside for the moment. Current decline from 1.3433 is in progress for 100% projection of 1.3433 to 1.2486 from 1.2810 at 1.1863. On the upside, break of 1.2321 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.2486 support turned resistance holds, in case of recovery.

    In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433, and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Building Permits M/M Nov 5.30% -5.20%
    00:00 AUD TD-MI Inflation Gauge M/M Dec 0.60% 0.20%
    03:00 CNY Trade Balance (USD) Dec 104.8B 100.0B 97.4B
    08:00 CHF SECO Consumer Climate -30 -38 -37

     



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  • Sterling Slides Further as UK Fiscal Concerns Persist, UK-China Trade Efforts Fail to Reassure Markets

    Sterling Slides Further as UK Fiscal Concerns Persist, UK-China Trade Efforts Fail to Reassure Markets


    Sterling extended its losses at the start of the week as deepening concerns over the UK’s fiscal situation continued to dominate market sentiment. Yields on 10-year UK Gilts surged above 4.88%, inching closer to the psychologically significant 5% mark. Market participants remain skeptical about the government’s fiscal discipline, despite repeated reassurances from Chancellor Rachel Reeves.

    At a press conference in China, Reeves reaffirmed her commitment to fiscal responsibility, stating, “We will pay for day-to-day spending through tax receipts and we will get debt down as a share of GDP.” However, these declarations fell flat with the markets, which is ore focused on the UK’s mounting fiscal challenges and sluggish economic growth.

    Reeves’ attempts to rejuvenate UK-China trade ties also failed to make a meaningful impact on sentiment. During her visit to Beijing, she announced trade and investment agreements worth GBP 600m over the next five years, following discussions with Chinese Vice-Premier He Lifeng.

    However, markets dismissed the news, viewing it as insufficient to offset broader economic and fiscal challenges. Domestically, Reeves faced criticism for engaging too closely with China, with some accusing her of compromising national interests for limited gains.

    In broader currency markets, Pound is currently the worst performer of the day, with Euro close behind. Dollar, consolidating last week’s robust gains, ranks as the third weakest currency. On the other hand, Yen tops the leaderboard, benefiting from renewed risk aversion among investors. Aussie follows, buoyed by upbeat Chinese trade data, while Kiwi ranks third. Swiss Franc and Canadian Dollar are positioning in the middle.

    The upcoming week promises significant developments, with key inflation reports from the US, UK, and Australia, alongside UK GDP figures.

    Technically, AUD/CAD’s fall from 0.9375 continued last week and edged closer to 0.8851 structural support. Decisive break there should confirm that whole corrective rebound from 0.8562 (2023 low) has completed, and solidify medium term bearishness for retesting this low. Nevertheless, strong bounce from current level, followed by break of 0.9016 resistance, will keep the rise from 0.8562 alive for another rally through 0.9375 at a later stage.

    ECB’s Lane stresses the need for “middle path” on interest rates

    ECB Chief Economist Philip Lane, in an interview with Der Standard, highlighted that a “middle path” is essential to achieving the inflation target without stifling economic growth or allowing inflationary pressures to persist.

    Lane warned that if interest rates fall too quickly, it could undermine efforts to bring services inflation under control. On the other hand, keeping rates too high for too long risks that inflation could “materially fall below target”.

    “We think inflation pressure will continue to ease this year,” Lane stated, while adding that wage increases in 2025 are expected to moderate significantly, which could contribute to a softer inflationary environment.

    While acknowledging that the overall direction of monetary policy is clear, Lane underlined the complexities of striking the right balance of “being neither too aggressive nor too cautious.”

    China’s monthly trade surplus soars to USD 104.8B as exports jumps 10.7% yoy

    China’s trade data for December delivered a solid performance, reflecting resilience in exports and a surprising recovery in imports.

    Exports surged 10.7% yoy, significantly outpacing the 7.3% yoy expected growth and accelerating from November’s 6.7%.

    Shipments to major markets rose sharply, with exports to the US jumping 18.9% yoy, ASEAN by 15.6% yoy, and the EU by 8.7% yoy. Some analysts highlighted that front-loading ahead of the Lunar New Year and trade policy shifts under Donald Trump’s incoming administration likely bolstered the month’s figures.

    Imports grew 1.0% yoy, defying expectations of a -1.5% yoy decline and marking a rebound after consecutive contractions of -3.9% yoy in November and -2.3% yoy in October. This recovery was driven in part by increased purchases of commodities like copper and iron ore, with importers potentially capitalizing on lower prices.

    Regionally, imports from the US rose by 2.6% yoy, while ASEAN imports grew 5.4% yoy. However, imports from the EU fell by -4.9% yoy.

    Trade surplus widened from USD 97.4B in November to USD 104.8B in December, surpassing expectations of USD 100B.

    Looking ahead, markets will closely monitor China’s upcoming GDP figures, due for release on Friday. Expectations are for fourth-quarter growth to clock in at 5.0% yoy.

    Market focus on US inflation and UK growth as Sterling and Aussie face risks

    Markets are preparing for a critical week with Dollar, Sterling, and Aussie all facing major economic releases.

    In the US, upcoming CPI and retail sales reports will command attention, especially following last week’s strong employment data that has rattled expectations about Fed’s next move. With non-farm payrolls far exceeding forecasts, traders have priced out the likelihood of a rate cut in the first quarter, turning their gaze instead to May or even June as the earliest possibility.

    Fed officials, who have long noted balanced risks to the dual mandate, could pivot more hawkishly if inflation readings surprise on the upside. Should CPI data reveal resurgence in price pressures, markets may be forced to extend their timeline for a Fed rate cut.

    Such a shift would likely offer further support to Dollar, which is already benefiting from the resilience of US labor markets and the potential for sustained higher interest rates.

    Meanwhile, US retail sales report will provide an additional gauge of consumer demand; robust spending could reinforce the notion that Fed has limited room to ease policy in the near term, keeping the Dollar well-bid.

    In the UK, Sterling is bracing for GDP, CPI, and retail sales figures. The Pound suffered sharp decline last week amid intensifying concerns over fiscal de-anchoring and stagflation.

    Should UK economic data disappoint on growth—particularly GDP or retail sales—the currency could face renewed selling pressure. Although upside surprises in inflation remain possible, investors appear more wary of signs that British growth is faltering in the wake of the Autumn budget measures.

    In Australia, markets are closely weighing whether RBA will commence its easing cycle in February or May. Much hinges on labor market developments. If job data continues to weaken, policymakers may have room to act sooner. Attention will then shift to Q4 CPI data, due in about two weeks, as a decisive factor in clarifying RBA’s direction.

    Meanwhile, external factors also come into play: China’s upcoming GDP release, along with a host of other indicators, could influence regional sentiment and, by extension, Australian Dollar.

    Here are some highlights for the week ahead:

    • Monday: China trade balance; Swiss SECO consumer climate.
    • Tuesday: Australia Westpac consumer sentiment; Japan current account; US PPI.
    • Wednesday: Japan machine tool orders, UK CPI; Eurozone industrial production; Canada manufacturing sales, wholesale sales; US CPI, Empire state manufacturing, Fed’s Beige Book.
    • Thursday: Japan PPI; Australia employment; UK GDP, production, trade balance; Eurozone trade balance, ECB accounts; US retail sales, jobless claims, Philly Fed survey, import prices, business inventories, NAHB housing index.
    • Friday: New Zealand BNZ manufacturing; China GDP, industrial production, retail sales, fixed asset investment; UK retail sales; Eurozone CPI final; US building permits and housing starts, industrial production and capacity utilization.

    GBP/JPY Daily Outlook

    Daily Pivots: (S1) 191.61; (P) 193.20; (R1) 194.19; More…

    GBP/JPY’s decline from 198.94 continues today and intraday bias remains on the downside. Deeper fall would be seen to 188.07 support. Firm break there will argue that corrective pattern from 180.00 has finished too, and larger decline from 208.09 might be ready to resume. On the upside, above 192.89 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 55 4H EMA (now at 195.22) holds.

    In the bigger picture, price actions from 208.09 are seen as a correction to whole rally from 123.94 (2020 low). The range of consolidation should be set between 38.2% retracement of 123.94 to 208.09 at 175.94 and 208.09. However, decisive break of 175.94 will argue that deeper correction is underway.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:45 NZD Building Permits M/M Nov 5.30% -5.20%
    00:00 AUD TD-MI Inflation Gauge M/M Dec 0.60% 0.20%
    03:00 CNY Trade Balance (USD) Dec 104.8B 100.0B 97.4B
    08:00 CHF SECO Consumer Climate -30 -38 -37

     



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