Tag: United Kingdom

  • US-Canada Talks Offer Hope, But Risk Aversion Keeps Yen in Demand

    US-Canada Talks Offer Hope, But Risk Aversion Keeps Yen in Demand


    After a burst of volatility earlier in the session, currency markets are taking a breather as traders reassess the evolving US tariff situation. Comments from White House National Economic Council Director Kevin Hassett helped cool tensions when he clarified that, “This is not a trade war, this is a drug war,” directing the focus toward fentanyl imports rather than a sweeping escalation of protectionist policies. His remarks have provided a temporary sense of relief, as markets take a step back to evaluate whether tariff measures could be adjusted or reversed if progress is made on fentanyl control.

    President Donald Trump’s updates on discussions with Canadian Prime Minister Justin Trudeau have also offered a glimmer of hope that a negotiated outcome could avert more severe tariff measures. Market sentiment hangs on the possibility that resolving fentanyl-related disputes could defuse tensions, but the risks for a breakdown in talks still looms. A failure to find common ground would likely re-energize the recent selloff and send safe-haven flows back into assets like the Japanese Yen, Swiss Franc and Dollar.

    Speaking of currencies, the Yen stands out as the day’s strongest performer so far, benefiting from sliding US Treasury yields and ongoing risk aversion. Dollar remains firm in second place. Sterling is surprising the third strongest, drawing relative support since it appears less threatened by new US tariffs than the European Union. Meanwhile, Swiss Franc has also gained ground on renewed risk-off sentiment. Kiwi, Euro, and Loonie lag behind while Aussie remains under pressure, despite taking a brief pause from its recent downward spiral.

    Technically, AUD/JPY’s fall from 102.39 resumed today by powering through 95.50 support. Immediate focus is now on 61.8% projection of 102.39 to 95.50 from 98.75 at 94.49. Decisive break there could prompt downside acceleration to 100% projection at 91.86. For now, risk will stay on the downside as long as 96.05 support turned resistance holds, in case of recovery.

    In Europe, at the time of writing, FTSE is down -1.57%. DAX is down -2.00%. CAC is down -1.76%. UK 10-year yield is down -0.0996 at 4.440. Germany 10-year yield is down -0.091 at 2.370. Earlier in Asia, Nikkei fell -2.66%. Hong Kong HSI fell -0.04%. China was on holiday. Singapore Strait Times fell -0.76%. Japan 10-year JGB yield rose 0.0075 to 1.249.

    US ISM manufacturing rises to 50.9, ending 26-month contraction

    The US manufacturing sector returned to expansion in January, with ISM Manufacturing PMI rising to 50.9 from 49.2, breaking a 26-month streak of contraction, above expectation of 49.3.

    The improvement was broad-based, signaling stronger demand and increased production capacity. Notably, new orders climbed to 55.1 from 52.1, reflecting growing demand, while production rose to 52.5 from 49.9, indicating that manufacturers are ramping up output in response.

    The employment index also showed a meaningful recovery, rebounding to 50.3 from 45.4, suggesting that firms are hiring again after months of labor market weakness. Meanwhile, input costs rose, with the prices index increasing to 54.9 from 52.5, signaling that inflationary pressures may be creeping back into the supply chain.

    Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, highlighted that the January PMI reading aligns with a projected 2.4% annualized GDP growth rate.

    Eurozone CPI rises to 2.5% in Jan, core unchanged at 2.7%

    Eurozone CPI rose from 2.4% yoy to 2.5% yoy in January, above expectation of 2.4% yoy. CPI core (ex-energy, food, alcohol & tobacco) was unchanged at 2.7% yoy, above expectation of 2.6% yoy.

    Looking at the main components, services is expected to have the highest annual rate in January (3.9%, compared with 4.0% in December), followed by food, alcohol & tobacco (2.3%, compared with 2.6% in December), energy (1.8%, compared with 0.1% in December) and non-energy industrial goods (0.5%, stable compared with December).

    Eurozone PMI manufacturing finalized at 46.6, still too early to talk about greenshoots

    Eurozone PMI Manufacturing was finalized at 46.6, up from December’s 45.1, marking an eight-month high. While still in contraction, the data suggests a slowdown in the sector’s decline. Germany’s PMI rose to 45.0, while France rose to 45.0. Austria (45.7) and Italy (46.3) also saw multi-month highs. Greece (52.8) and Spain (50.9) remained in expansion.

    According to Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, despite the improvement, manufacturing remains under pressure. It is “too early” to signal a full recovery. Rising input costs, driven by nearly 7% increase in oil prices, pose risks for firms already facing weak demand. ECB’s easing path could also be complicated if inflationary pressures persist.

    The US is expected to impose tariffs on European exports. However, business confidence has improved, with future output expectations rising four points above the long-term average, partly driven by optimism surrounding upcoming elections in Germany and possibly France.

    While Germany and France remain the weakest performers, the pace of contraction has slowed across multiple sectors. De la Rubia noted that over 90% of Eurozone exports go to markets outside the US, limiting the immediate impact of potential tariffs.

    UK PMI manufacturing finalized at 48.3, outlook remains weak

    UK manufacturing sector remained in contraction at the start of 2025, with January’s final PMI rising slightly to 48.3 from December’s 11-month low of 47.0. Despite the modest improvement, four of the five key components—output, new orders, employment, and stocks of purchases—declined. The only positive indicator was longer average vendor lead times, which typically reflect supply chain constraints rather than stronger demand.

    Rob Dobson, Director at S&P Global Market Intelligence noted that Weak domestic and international demand remains a key drag on the sector, with no clear signs of recovery in sight. Rising cost pressures are also adding to the strain, with input price inflation reaching a two-year high.

    The effects of last year’s Budget changes, particularly increases in the minimum wage and employer National Insurance contributions, are expected to feed further into rising costs. These factors could keep pressure on profit margins and limit any near-term rebound in manufacturing activity. Business confidence remains low, hovering near December’s two-year low, reflecting ongoing uncertainty in both economic conditions and policy direction.

    BoJ opinions signal more rate hikes as inflation risks tilt higher

    BoJ’s Summary of Opinions from the January 23-24 meeting indicates a growing shift toward policy normalization, as multiple board members highlighted mounting inflationary pressures.

    Rising import costs driven by the weak yen have led more businesses to raise prices, prompting concerns that inflation could overshoot expectations.

    One member noted that with economic activity and prices remaining stable, “risks to prices have become more skewed to the upside,” emphasizing that rate hikes should be “timely and gradual.”

    Some policymakers warned that continued Yen depreciation and excessive risk-taking could lead to an overheating of financial activities. To counter this, one board member argued for additional rate hikes to stabilize the currency and prevent further distortions in market expectations regarding BoJ policy.

    At the January meeting, the BoJ raised its short-term policy rate from 0.25% to 0.50%, marking another step away from ultra-loose monetary policy. The central bank also revised its price forecasts higher, reinforcing its confidence that rising wages will sustain inflation near the 2% target.

    Japan’s PMI manufacturing finalized at 48.7, deepest contraction in 10 Months

    Japan’s PMI Manufacturing was finalized at 48.7 in January, down from December’s 49.6. This marks the sharpest decline in output since March 2024, as firms faced a steeper drop in new orders. Weak demand conditions forced manufacturers to scale back production, reflecting ongoing headwinds for the sector.

    According to S&P Global, businesses reacted to falling demand by cutting both inventories and raw material holdings, while also reducing input purchases at the fastest pace in nearly a year. Employment growth also slowed, highlighting a cautious approach to hiring amid economic uncertainty.

    Despite the downturn, manufacturers maintained a positive outlook for future output, though confidence fell to its lowest level since December 2022. While firms expect a recovery in demand, concerns persist over when such an improvement will materialize. The slowdown in input price inflation to a nine-month low provides some relief, but overall, sentiment remains fragile.

    Australia’s retail sales dip -0.1% mom in Dec, less than expected

    Australia’s retail sales turnover edged down by -0.1% mom in December, a smaller decline than the expected -0.7% mom. While the contraction marks a pullback from the strong growth seen in previous months—0.7% mom in November and 0.5% in October mom—it suggests that consumer spending remains relatively resilient.

    According to Robert Ewing, head of business statistics at the Australian Bureau of Statistics, retail activity was supported by extended promotional events, helping to smooth spending patterns over the quarter. He noted that Cyber Monday, which fell in early December, boosted demand for discretionary items, particularly furniture, homewares, electronics, and electrical goods.

    China’s Caixin PMI manufacturing slips to 50.1, growth momentum weakens

    China’s Caixin Manufacturing PMI edged down to 50.1 in January from 50.5 in December.

    According to Caixin Insight Group, manufacturers saw improved logistics and a slight pickup in supply and demand. However, employment levels deteriorated notably, and new export orders remained weak, reflecting sluggish global demand.

    External risks also remain a key concern, with rising geopolitical uncertainty adding pressure to China’s export environment. Disruptions in global trade policies could further dampen overseas demand, making it difficult for manufacturers to sustain current production levels.

    Domestically, consumer spending remains sluggish, highlighting the need for policy measures aimed at boosting disposable income and restoring confidence.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0328; (P) 1.0381; (R1) 1.0412; More…

    Intraday bias in EUR/USD remains on the downside for the moment. Decisive break of 1.0176 will resume whole fall from 1.1213. Next target will be 61.8% projection of 1.1213 to 1.0176 from 1.0531 at 0.9890. On the upside, above 1.0349 resistance will turn intraday bias neutral again first. But outlook will stay bearish as long as 1.0531 resistance holds, in case of strong recovery.

    In the bigger picture, immediate focus is back on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. For now, risk will stay on the downside as long as 1.0531 resistance holds, in case of rebound.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY BOJ Summary of Opinions
    00:30 AUD Retail Sales M/M Dec -0.10% -0.70% 0.80% 0.70%
    00:30 AUD Building Permits M/M Dec 0.70% 1.00% -3.60% -3.40%
    00:30 JPY Manufacturing PMI Jan F 48.7 48.8 48.8
    01:45 CNY Caixin Manufacturing PMI Jan 50.1 50.5 50.5
    08:30 CHF Manufacturing PMI Jan 47.5 48.4
    08:50 EUR France Manufacturing PMI Jan F 45 45.3 45.3
    08:55 EUR Germany Manufacturing PMI Jan F 45 44.1 44.1
    09:00 EUR Eurozone Manufacturing PMI Jan F 46.6 46.1 46.1
    09:30 GBP Manufacturing PMI Jan F 48.3 48.2 48.2
    10:00 EUR Eurozone CPI Y/Y Jan P 2.50% 2.40% 2.40%
    10:00 EUR Eurozone CPI Core Y/Y Jan P 2.70% 2.60% 2.70%
    14:30 CAD Manufacturing PMI Jan 51.6 52.2
    14:45 USD Manufacturing PMI Jan F 51.2 50.1 50.1
    15:00 USD ISM Manufacturing PMI Jan 50.9 49.3 49.3
    15:00 USD ISM Manufacturing Prices Paid Jan 54.9 52.6 52.5
    15:00 USD ISM Manufacturing Employment Index Jan 50.3 45.3
    15:00 USD Construction Spending M/M Dec 0.50% 0.30% 0.00%

     



    Source link

  • Trade War 2.0 Shakes Global Markets as Dollar Rallies

    Trade War 2.0 Shakes Global Markets as Dollar Rallies


    Global markets kicked off February under heavy strain as US President Donald Trump’s long-anticipated tariffs on Canada, Mexico, and China came into full effect. Investor sentiment turned sharply negative, with Japan’s Nikkei tumbling over 1,000 points in response. Dollar opened the week with a strong gap higher and maintained solid gains throughout Asian session. Commodity-linked currencies bore the brunt of the selloff, particularly New Zealand and Australian Dollars, which struggled even more than Canadian Dollar—despite Canada being directly targeted by the new tariffs. Meanwhile, Euro and Pound also weakened, though not as severely as the major commodity currencies.

    Looking ahead, the trade dispute theme should continue to dominate market sentiment for the foreseeable future. The US administration has hinted at the likelihood of expanding tariffs to Europe and possibly the UK, though there appears to be some willingness to discuss matters further with London. Beyond trade tensions, upcoming events such as BoE’s policy decision—which is widely expected to involve a 25bps rate reduction—will also command attention. Additionally, a series of key US data releases, including the ISM manufacturing and services indexes plus non-farm payrolls, could further influence the risk mood.

    Another noteworthy shift is taking shape in the cryptocurrency market, where both Bitcoin and Ethereum have taken a steep hit. Although the new tariffs reaffirm Trump’s commitment to his promises—such as turning the US into a major crypto hub—virtual currencies have not benefitted. Instead, global uncertainty has driven investors toward safer assets, prompting a retreat from riskier corners of the market.

    Technically, for now, there’s no panic for Bitcoin yet as 89127 support remains intact. The recent up trend is still in favor to resume for another take on 100k market at a later stage. However, firm break of 89127 support will complete a double top pattern, and could trigger deeper correction back to 73812 resistance turned support and possibly below.

    In Asia, at the time of writing, Nikkei is down -2.74%. Hong Kong HSI is down -0.74%. China is on holiday. Singapore Strait Times is down -0.29%. Japan 10-year JGB yield is down -0.0118 at 1.230.

    Trade War 2.0 kicks off, USD/CAD breaks key resistance with 1.50 in sight

    The long-anticipated escalation in trade tensions has officially materialized as US President Donald Trump imposed sweeping tariffs over the weekend. A 25% tariff is now in effect on imports from Canada and Mexico, while China faces a 10% levy on its exports to the US. The move, widely expected, marks the formal start of what is being called Trade War 2.0.

    In immediate response, Canada announced retaliatory tariffs of 25% on USD 155B worth of US goods, while China indicated that it would file a case against the US at the World Trade Organization.

    Dollar gapped higher as the week started in response to the development. USD/CAD broke through 1.4689 key resistance (2016 high) to resume the long term up trend. Technically, the next medium term target for USD/CAD is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993.

    Though given the scale of uncertainty surrounding the trade dispute, further upside cannot be ruled out. A lack of near-term resolution could see USD/CAD extend even higher toward 61.8% projection of 0.9406 to 1.4689 from 1.2005 at 1.5270 before topping.

    BoJ opinions signal more rate hikes as inflation risks tilt higher

    BoJ’s Summary of Opinions from the January 23-24 meeting indicates a growing shift toward policy normalization, as multiple board members highlighted mounting inflationary pressures.

    Rising import costs driven by the weak yen have led more businesses to raise prices, prompting concerns that inflation could overshoot expectations.

    One member noted that with economic activity and prices remaining stable, “risks to prices have become more skewed to the upside,” emphasizing that rate hikes should be “timely and gradual.”

    Some policymakers warned that continued Yen depreciation and excessive risk-taking could lead to an overheating of financial activities. To counter this, one board member argued for additional rate hikes to stabilize the currency and prevent further distortions in market expectations regarding BoJ policy.

    At the January meeting, the BoJ raised its short-term policy rate from 0.25% to 0.50%, marking another step away from ultra-loose monetary policy. The central bank also revised its price forecasts higher, reinforcing its confidence that rising wages will sustain inflation near the 2% target.

    Japan’s PMI manufacturing finalized at 48.7, deepest contraction in 10 Months

    Japan’s PMI Manufacturing was finalized at 48.7 in January, down from December’s 49.6. This marks the sharpest decline in output since March 2024, as firms faced a steeper drop in new orders. Weak demand conditions forced manufacturers to scale back production, reflecting ongoing headwinds for the sector.

    According to S&P Global, businesses reacted to falling demand by cutting both inventories and raw material holdings, while also reducing input purchases at the fastest pace in nearly a year. Employment growth also slowed, highlighting a cautious approach to hiring amid economic uncertainty.

    Despite the downturn, manufacturers maintained a positive outlook for future output, though confidence fell to its lowest level since December 2022. While firms expect a recovery in demand, concerns persist over when such an improvement will materialize. The slowdown in input price inflation to a nine-month low provides some relief, but overall, sentiment remains fragile.

    Australia’s retail sales dip -0.1% mom in Dec, less than expected

    Australia’s retail sales turnover edged down by -0.1% mom in December, a smaller decline than the expected -0.7% mom. While the contraction marks a pullback from the strong growth seen in previous months—0.7% mom in November and 0.5% in October mom—it suggests that consumer spending remains relatively resilient.

    According to Robert Ewing, head of business statistics at the Australian Bureau of Statistics, retail activity was supported by extended promotional events, helping to smooth spending patterns over the quarter. He noted that Cyber Monday, which fell in early December, boosted demand for discretionary items, particularly furniture, homewares, electronics, and electrical goods.

    China’s Caixin PMI manufacturing slips to 50.1, growth momentum weakens

    China’s Caixin Manufacturing PMI edged down to 50.1 in January from 50.5 in December.

    According to Caixin Insight Group, manufacturers saw improved logistics and a slight pickup in supply and demand. However, employment levels deteriorated notably, and new export orders remained weak, reflecting sluggish global demand.

    External risks also remain a key concern, with rising geopolitical uncertainty adding pressure to China’s export environment. Disruptions in global trade policies could further dampen overseas demand, making it difficult for manufacturers to sustain current production levels.

    Domestically, consumer spending remains sluggish, highlighting the need for policy measures aimed at boosting disposable income and restoring confidence.

    BoE Set to Cut, NFP to Steer Dollar Outlook

    This week’s forex market focus will largely center on BoE upcoming policy decision, where a 25bps rate cut to 4.50% is widely anticipated. Along with the rate announcement, traders will closely watch the MPC voting breakdown and the release of new economic projections.

    Data from the UK since November’s rate cut have painted a mixed picture: GDP growth has stagnated, inflation has eased, but wage growth has unexpectedly picked up. These conflicting signals leave the door open for surprises when the MPC releases its updated forecasts.

    The general consensus favors a gradual easing path for BoE, with a quarterly tempo of 25bps cuts, totaling 100bps for the entire year. However, market expectations are somewhat more conservative, pricing in just over 75bps of easing in 2025.

    Heightened uncertainty stems from several factors, including the domestic effects of the Autumn budget and the fallout from US tariff threats. The new projections and the voting details could help clarify the BoE’s assessment of these risks, especially regarding inflation and growth outlooks.

    MPC voting will be a prime area of focus. Known hawk Catherine Mann aligning with the broader committee in supporting a cut would send a notably dovish signal. Conversely, if the typically dovish Swati Dhingra refrains from advocating a 50bps cut, markets could interpret that as unexpectedly “hawkish”. The interplay of these votes will likely set the tone for Sterling, as traders decipher how unified or divided the committee is on monetary policy strategy.

    Beyond BoE decision, US non-farm payrolls report and ISM manufacturing and services data will grab attention too. After last week’s FOMC hold, Fed Chair Jerome Powell indicated explicitly that the central bank is not in a hurry to cut rates further, even though policy easing remains on course.

    The futures market currently suggests a better-than-even chance that Fed will keep policy on pause at least until May. Unless this week’s data delivers significant surprises—either in job growth or wage pressures—this expectation is unlikely to shift meaningfully.

    The key question revolves around the pace of easing in the second half of the year and the eventual terminal rate. However, given Powell’s recent comments, it’s unlikely that these questions will be answered in the near term.

    Elsewhere, key economic indicators from Eurozone, Japan, Canada, Australia, and New Zealand will also contribute to currency market movements. In particular, Eurozone’s CPI flash, Japan’s wage and household spending, Canada’s employment report, Australia’s retail sales and New Zealand’s employment data will be closely watched.

    Here are some highlights for the week:

    • Monday: BoJ summary of opinions, Japan PMI manufacturing final; Australia retail sales, build approvals; China Caixin PMI manufacturing; Swiss PMI manufacturing; Eurozone PMI manufacturing final, CPI flash; UK PMI manufacturing final; US ISM manufacturing.
    • Tuesday: Japan monetary base; US factory orders.
    • Wednesday: New Zealand employment; Japan labor cash earnings; China Caixin PMI services; Eurozone PMI services final, PPI; UK PMI services final; US ADP employment, trade balance, ISM services; Canada trade balance.
    • Thursday: Australia trade balance, NAB quarterly business confidence; Swiss unemployment rate; Eurozone retail sales; BoE rate decision; US jobless claims, non-farm productivity; Canada Ivey PMI.
    • Friday: Japan household spending, leading indicators; Germany industrial production, trade balance; Swiss foreign currency reserves; Canada employment; US non-farm payrolls.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6189; (P) 0.6226; (R1) 0.6249; More…

    AUD/USD’s fall from 0.6941 resumed by breaking through 0.6130 support today. Intraday bias is back on the downside fro 61.8% projection of 0.6687 to 0.6130 from 0.6329 at 0.5985 next. For now, outlook will stay bearish as long as 0.6329 resistance holds, in case of recovery.

    In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). 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 0.6511) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY BOJ Summary of Opinions
    00:30 AUD Retail Sales M/M Dec -0.10% -0.70% 0.80% 0.70%
    00:30 AUD Building Permits M/M Dec 0.70% 1.00% -3.60% -3.40%
    00:30 JPY Manufacturing PMI Jan F 48.7 48.8 48.8
    01:45 CNY Caixin Manufacturing PMI Jan 50.1 50.5 50.5
    08:30 CHF Manufacturing PMI Jan 48.4
    08:50 EUR France Manufacturing PMI Jan F 45.3 45.3
    08:55 EUR Germany Manufacturing PMI Jan F 44.1 44.1
    09:00 EUR Eurozone Manufacturing PMI Jan F 46.1 46.1
    09:30 GBP Manufacturing PMI Jan F 48.2 48.2
    10:00 EUR Eurozone CPI Y/Y Jan P 2.40% 2.40%
    10:00 EUR Eurozone CPI Core Y/Y Jan P 2.60% 2.70%
    14:30 CAD Manufacturing PMI Jan 52.2
    14:45 USD Manufacturing PMI Jan F 50.1 50.1
    15:00 USD ISM Manufacturing PMI Jan 49.3 49.3
    15:00 USD ISM Manufacturing Prices Paid Jan 52.6 52.5
    15:00 USD ISM Manufacturing Employment Index Jan 45.3
    15:00 USD Construction Spending M/M Dec 0.30% 0.00%

     



    Source link

  • Euro Strengthens on Optimistic PMI Data; Dollar and Yen Under Pressure

    Euro Strengthens on Optimistic PMI Data; Dollar and Yen Under Pressure


    Euro posted notable gains today as lifted by encouraging Eurozone PMI data that suggests the region is beginning the year on firmer footing. Private sector activity showed cautious growth, with reduced drag from manufacturing and moderate expansion in services. Most surprisingly, Germany, which struggled throughout 2024, returned to expansion. Sterling also gained on better PMI readings even though stagnation risks persist, particularly due to accelerated job cuts in the UK.

    Dollar extended its decline as risk-on sentiment dominated markets, despite US equity indices taking a breather after strong rallies earlier this week. The greenback is currently the weakest performer for the day, followed by Yen, which gave back its brief gains following BoJ’s widely anticipated rate hike. The Swiss Franc also underperformed, completing a trio of safe-haven currencies that lagged behind in today’s risk-driven market environment.

    Technically, Swiss Franc’s weakness warrants closer attention. The strong rally in GBP/CHF today suggest that fall from 1.1393 has completed at 1.1086 after defending 1.1106 support. The development keeps the rally from 1.0741 alive. Retest of 1.1393 would be seen next, and firm break there will extend the rise towards 1.1675 high.

    In Europe, at the time of writing, FTSE is down -0.75%. DAX is down -0.20%. CAC is up 0.36%. UK 10-year yield is down -0.001 at 4.639. Germany 10-year yield up 0.028 at 2.579. Earlier in Asia, Nikkei fell -0.07%. Hong Kong HSI rose 1.86%. China Shanghai SSE rose 0.70%. Singapore Strait Times fell -0.06%. Japan 10-year JGB yield rose 0.0255 to 1.235.

    US PMI composite falls to 9-mth low, optimism holds despite slowing growth and rising costs

    US PMI data for January painted a mixed picture. PMI Manufacturing rose from 49.4 to 50.1, reaching a seven-month high and signaling a return to slight expansion. However, PMI Services dropped sharply from 56.8 to 52.8, a nine-month low, dragging PMI Composite down from 55.4 to 52.4, also a nine-month low.

    Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, highlighted that US businesses are starting 2025 in an “upbeat mood,” with optimism about the new administration driving stronger economic growth. Despite the slowdown in output growth, “sustained confidence” among businesses suggests this deceleration may be temporary. Encouragingly, hiring has surged, with job creation reaching its fastest pace in two and a half years, signaling resilience in the labor market.

    However, inflationary pressures are resurfacing, posing risks to the economic outlook. Companies have reported “supplier-driven price hikes” and “wage growth amid poor staff availability.” Inflation in input costs and selling prices has been “broad-based across goods and services,” which, if sustained, could fuel concerns about hawkish policy approach from the Fed.

    UK PMI composite edges higher to 50.9, but stagflation risks cloud economic outlook

    UK PMI Composite rose slightly from 50.4 to 50.9 in January, indicating marginal growth. Manufacturing PMI improved from 47.0 to 48.2, while services PMI ticked up from 51.1 to 51.2. Despite these increases, the overall outlook remains gloomy, with underlying concerns about economic weakness and inflationary pressures persisting.

    Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, warned that the data “add to the gloom” surrounding the UK economy.

    Companies are cutting jobs at the fastest rate since the global financial crisis in 2009, reflecting falling sales and bleak business prospects. Business optimism remains at its lowest levels in two years, accompanied by subdued activity across sectors.

    Inflationary pressures have also “reignited,” creating what Williamson described as a “stagflationary environment” and a “policy quandary” for BoE.

    Eurozone PMI composite hits 50.2 as Germany returns to growth

    Eurozone PMI data for January showed cautious improvement, with PMI Composite rising from 49.6 to 50.2, a five-month high, signaling a return to marginal growth. Manufacturing PMI increased to 46.1, its highest in eight months, while services PMI slipped slightly to 51.4 but remained in expansion.

    Germany led the improvement, with its PMI Composite climbing from 48.0 to 50.1, marking a seven-month high and a return to expansionary territory. Meanwhile, France lagged behind, with its PMI Composite increasing to 48.3 but remaining below the 50 threshold, indicating continued contraction.

    Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, described the data as “mildly encouraging.” He noted that the private sector had entered a phase of cautious growth, with reduced drag from manufacturing and moderate expansion in services. Germany’s strong rebound played a key role in offsetting the continued weakness in France.

    Inflationary pressures, however, remain a concern ahead of next week’s ECB meeting. Input prices in manufacturing rose for the first time in four months, driven by a weaker euro and Germany’s increased CO2 tax. In the services sector, cost inflation persisted, largely due to higher wages. Selling prices in services also remained elevated.

    Due to persistent inflation risks and the fragile state of the economy, ECB is likely stick to its gradual pace of cutting interest rates.

    BoJ delivers expected rate hike, upgrades core inflation forecasts

    BoJ raised its uncollateralized overnight call rate by 25bps to 0.50% as widely expected, marking the highest level since 2008. The decision, made by an 8-1 vote, saw dissent from board member Nakamura Toyoaki, who advocated for a delay until March.

    In the new economic projections, core CPI forecasts were significantly revised upward from 1.9% to 2.4% for fiscal 2025, and slightly from 1.9% to 2.0% for fiscal 2026. Core-core CPI (excluding energy and fresh food) forecast was also raised from 1.9% to 2.1% for fiscal 2025, remaining unchanged at 2.1% for fiscal 2026. Real GDP growth projections were left steady at 1.1% for fiscal 2025 and 1.0% for fiscal 2026.

    At the post-meeting press conference, Governor Kazuo Ueda downplayed the sharp inflation forecast revisions, stating, “The rise in underlying inflation is moderate. I don’t think we are seriously behind the curve in dealing with inflation.”

    He reiterated the importance of a gradual approach to policy adjustments, and there no “preset idea” on the timing and pace of rate hikes. He also highlighted the estimated neutral range of 1%-2.5%, emphasizing that the current rate of 0.5% still has “some distance” to reach neutral.

    Also released, CPI core (ex-food) jumped from 2.7% yoy to 3.0% yoy in December, marking the highest rate in 16 months. CPI core-core (ex-food & energy) was unchanged at 2.4% yoy. Headline CPI rose from 2.9% yoy to 3.6% yoy.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.0379; (P) 1.0409; (R1) 1.0445; More…

    Intraday bias in EUR/USD remains on the upside as rebound from 1.1076 is in progress. Strong resistance might be seen from 38.2% retracement of 1.1213 to 1.0176 at 1.0572 to limit upside. Break of 1.0371 minor support will bring retest of 1.0176 low. However, sustained break of 1.0572 will raise the chance of bullish reversal, and target 61.8% retracement at 1.0817.

    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
    22:00 AUD Manufacturing PMI Jan P 49.8 47.8
    22:00 AUD Services PMI Jan P 50.4 50.8
    23:30 JPY National CPI Y/Y Dec 3.60% 2.90%
    23:30 JPY National CPI Core Y/Y Dec 3.00% 3.00% 2.70%
    23:30 JPY National CPI Core-Core Y/Y Dec 2.40% 2.70% 2.40%
    00:01 GBP GfK Consumer Confidence Jan -22 -18 -17
    00:30 JPY Manufacturing PMI Jan P 48.8 49.7 49.6
    00:30 JPY Services PMI Jan P 52.7 50.9
    03:23 JPY BoJ Interest Rate Decision 0.50% 0.50% 0.25%
    08:15 EUR France Manufacturing PMI Jan P 45.3 42.1 41.9
    08:15 EUR France Services PMI Jan P 48.9 49.4 49.3
    08:30 EUR Germany Manufacturing PMI Jan P 44.1 42.9 42.5
    08:30 EUR Germany Services PMI Jan P 52.5 51.1 51.2
    09:00 EUR Eurozone Manufacturing PMI Jan P 46.1 45.3 45.1
    09:00 EUR Eurozone Services PMI Jan P 51.4 51.4 51.6
    09:30 GBP Manufacturing PMI Jan P 48.2 46.9 47
    09:30 GBP Services PMI Jan P 51.2 50.6 51.1
    13:30 CAD New Housing Price Index M/M Dec -0.10% 0.20% 0.10%
    14:45 USD Manufacturing PMI Jan P 50.1 49.4
    14:45 USD Services PMI Jan P 52.8 56.8
    15:00 USD Existing Home Sales M/M Dec 4.24M 4.16M 4.15M
    15:00 USD Michigan Consumer Sentiment Jan F 71.1 73.2 73.2

     



    Source link

  • Loonie Weakness Persists in Calmer Markets, AUD/CAD Challenges Key Resistance

    Loonie Weakness Persists in Calmer Markets, AUD/CAD Challenges Key Resistance


    Forex markets have settled into quieter trading as the immediate impact of US President Donald Trump’s inauguration and initial executive orders fades. While Trump’s proposed tariffs remain a significant concern, their delayed implementation suggests a more calculated and strategic approach, tied to future negotiations. This tempered stance has brought a sense of cautious optimism to the markets, as the eventual impact may not be as severe as initially feared—especially if major agreements are reached with key allies like the EU.

    Despite this relative calm, Canadian Dollar remains under significant pressure. As the most immediate target of Trump’s tariff agenda, with measures likely set to take effect on February 1. Loonie’s recovery struggled to gain traction. This weakness has been compounded by softer-than-expected Canadian CPI data for December. While energy prices saw a boost due to base effects, other areas of the economy, such as food and restaurant pricing, contributed to the overall deceleration in inflation. With inflation hovering near the 2% target, BoC is expected to continue easing monetary policy, albeit at a slower pace.

    So far this week, Dollar has been the weakest performer, followed by Loonie and Yen. On the other side of the spectrum, Kiwi leads the gainers, followed by Euro and Sterling. Swiss Franc and Australian Dollar are positioned more neutrally, sitting in the middle of the performance table.

    Technically, AUD/CAD’s rebound extended this week on Loonie’s weakness. It’s now pressing 0.9016 resistance and 55 D EMA. Sustained break there would argue that 0.8851 support was successfully defended, and corrective rally from 0.8562 (2023 low) remains intact. Further rise should then be seen back to retest 0.9375 high.

    In Europe, at the time of writing, FTSE is up 0.09%. DAX is down -0.09%. CAC is up 0.18%. UK 10-year yield is down -0.053 at 4.610. Germany 10-year yield is down -0.011 at 2.518. Earlier in Asia, Nikkei rose 0.32%. Hong Kong HSI rose 0.91%. China Shanghai SSE fell -0.05%. Singapore Strait Times fell -0.33%. Japan 10-year JGB yield fell -0.0073 to 1.190.

    Canada’s Inflation Slows to 1.8% in Dec Amid Food Price Decline

    Canada’s annual inflation rate eased to 1.8% yoy in December, down from 1.9% yoy in November and slightly below expectations of 1.9% yoy. The deceleration was largely driven by declines in food prices and alcohol-related expenses.

    Canadians paid 1.6% less for food purchased from restaurants on a year-over-year basis, marking the first annual decline in this index. Excluding food, CPI rose by 2.1% yoy.

    Gasoline prices, for example, rose 3.5% yoy in December, reversing a -0.5% yoy decline in November. The increase was attributed to a base-year effect, as December 2023 saw a sharp -4.4% monthly decline due to concerns about oil demand amid high supply levels. However, on a month-over-month basis, gasoline prices edged down by -0.6% mom.

    Looking at the core measures, CPI median slowed from 2.6% yoy to 2.4% yoy versus expectation of 2.5% yoy. CPI trimmed slowed from 2.6% yoy to 2.5% yoy, matched expectations. CPI common was unchanged at 2.0% yoy, above expectation 1.9% yoy.

    German ZEW falls to 10.3 as Eurozone shows relative resilience

    German ZEW Economic Sentiment fell sharply in January, dropping from 15.7 to 10.3 and missing market expectations of 15.1. In contrast, Current Situation Index showed slight improvement, rising from -93.1 to -90.4, slightly better than forecasts of -93.0.

    Meanwhile, Eurozone ZEW Economic Sentiment painted a more optimistic picture, climbing from 17.0 to 18.0, exceeding expectations of 16.9. Current Situation Index for the Eurozone also rose, gaining 1.2 points to -53.8.

    ZEW President Achim Wambach attributed the decline in Germany’s sentiment to persistent economic headwinds. He noted, “The second consecutive year of recession caused economic expectations in Germany to fall.”

    Key factors include weak private household spending and low demand in the construction sector. Wambach warned that if these trends persist, “Germany will fall further behind the other countries of the Eurozone.”

    Adding to the challenges, Wambach highlighted growing political uncertainty in Germany due to the complexities of coalition-building and the unpredictability of economic policies under the new Trump administration in the US.

    UK payrolled employment falls -47k in Dec, unemployment rate rises to 4.4% in Nov

    UK payrolled employment fell -47k or -0.2% mom in December. Median monthly pay rose 5.6% yoy, down from 6.4% yoy in November and 7.9% yoy in October. Claimant count rose 0.7k, below expectation of 10.3k.

    In the three months to November, unemployment rate ticked up to 4.4%, above expectation of 4.3%. Average earnings excluding bonus rose 5.6% yoy, up from 5.2% yoy, and above expectation of 5.5% yoy. Average earnings including bonus rose 5.6% yoy, up from 5.2% yoy, matched expectations.

    NZ BNZ services fall to 47.9, contracts for 10th month

    New Zealand’s BNZ Performance of Services Index declined from 49.1 to 47.9 in December, well below historical average of 53.1. This also marks the 10th consecutive month of contraction.

    The breakdown of the data highlights broad weakness: activity/sales fell from 48.3 to 46.2, and supplier deliveries dropped sharply from 52.5 to 47.7. New orders/business remained stagnant at 49.5, just below the threshold for expansion, while employment showed a marginal improvement, rising from 46.7 to 47.4. Stocks/inventories also slipped into contraction territory, falling from 52.0 to 48.8.

    Negative sentiment among respondents increased to 57.5% in December, up from 53.6% in November, with cost-of-living pressures and concerns about the general economic climate dominating feedback.

    BNZ’s Senior Economist Doug Steel remarked, “Comparing across our key trading partners, New Zealand has the only PSI in contraction. Our neighbour Australia is the closest comparison, but their equivalent PSI is sitting more comfortably at 50.8.”

    GBP/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.2211; (P) 1.2278; (R1) 1.2395; More…

    Intraday bias in GBP/USD remains neutral for the moment. Consolidations from 1.2099 could extend with stronger recovery But outlook will remain bearish as long as 12486 support turned resistance holds. On the downside, break of 1.2099 will resume the fall from 1.3433 to 100% projection of 1.3433 to 1.2486 from 1.2810 at 1.1863.

    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
    21:30 NZD Business NZ PSI Dec 47.9 49.5
    07:00 GBP Claimant Count Change Dec 0.7K 10.3K 0.3K -25.1K
    07:00 GBP ILO Unemployment Rate (3M) Nov 4.40% 4.30% 4.30%
    07:00 GBP Average Earnings Excluding Bonus 3M/Y Nov 5.60% 5.50% 5.20%
    07:00 GBP Average Earnings Including Bonus 3M/Y Nov 5.60% 5.60% 5.20%
    10:00 EUR Germany ZEW Economic Sentiment Jan 10.3 15.1 15.7
    10:00 EUR Germany ZEW Current Situation Jan -90.4 -93 -93.1
    10:00 EUR Eurozone ZEW Economic Sentiment Jan 18 16.9 17
    13:30 CAD CPI M/M Dec -0.40% -0.40% 0.00%
    13:30 CAD CPI Y/Y Dec 1.80% 1.90% 1.90%
    13:30 CAD CPI Median Y/Y Dec 2.40% 2.50% 2.60%
    13:30 CAD CPI Trimmed Y/Y Dec 2.50% 2.50% 2.70% 2.60%
    13:30 CAD CPI Common Y/Y Dec 2.00% 1.90% 2.00%

     



    Source link

  • Loonie on a Rollercoaster on Tariff Threats, Canadian CPI Watched

    Loonie on a Rollercoaster on Tariff Threats, Canadian CPI Watched


    Canadian Dollar endured a rough ride, heavily influenced by US President Donald Trump’s tariff rhetoric. The Loonie initially gained some ground yesterday, as Dollar weakened broadly after Trump refrained from imposing immediate tariffs during his first day in office. However, optimism was short-lived as Trump warned of 25% tariffs on both Mexico and Canada starting February 1, citing border security concerns and labeling Canada a “very bad abuser.”

    Trump’s remarks, made during a press briefing accompanying his wave of executive orders, have brought uncertainty back to the already fragile sentiment. In the background, BoC’s latest business outlook survey highlighted apprehension among Canadian businesses. Conducted during November 2024, the survey revealed that 40% of respondents expected negative effects from the new US administration, while one-third were uncertain about the fallout.

    On the horizon, Canada’s December CPI report due today could trigger more volatility in Loonie. Both headline and core inflation are expected to ease further, reinforcing the case for another 25-bps rate cut at BoC’s January 29 meeting. Despite signaling a slower pace of monetary easing this year, BoC appears not ready for a pause yet. At least one more cut is generally expected, especially with inflation hovering near the 2% target.

    Technically for USD/CAD, near term bullishness was revived after yesterday’s huge volatility. For now, further rise is expected as long as 1.4260 support holds. Current rally should continue towards 1.4667 key long term resistance. Nevertheless, a firm break there might not happen until the tariff picture is cleared. For any dip, through 1.4260, the next level of defense would be 55 D EMA (now at 1.4203).

    UK payrolled employment falls -47k in Dec, unemployment rate rises to 4.4% in Nov

    UK payrolled employment fell -47k or -0.2% mom in December. Median monthly pay rose 5.6% yoy, down from 6.4% yoy in November and 7.9% yoy in October. Claimant count rose 0.7k, below expectation of 10.3k.

    In the three months to November, unemployment rate ticked up to 4.4%, above expectation of 4.3%. Average earnings excluding bonus rose 5.6% yoy, up from 5.2% yoy, and above expectation of 5.5% yoy. Average earnings including bonus rose 5.6% yoy, up from 5.2% yoy, matched expectations.

    NZ BNZ services fall to 47.9, contracts for 10th month

    New Zealand’s BNZ Performance of Services Index declined from 49.1 to 47.9 in December, well below historical average of 53.1. This also marks the 10th consecutive month of contraction.

    The breakdown of the data highlights broad weakness: activity/sales fell from 48.3 to 46.2, and supplier deliveries dropped sharply from 52.5 to 47.7. New orders/business remained stagnant at 49.5, just below the threshold for expansion, while employment showed a marginal improvement, rising from 46.7 to 47.4. Stocks/inventories also slipped into contraction territory, falling from 52.0 to 48.8.

    Negative sentiment among respondents increased to 57.5% in December, up from 53.6% in November, with cost-of-living pressures and concerns about the general economic climate dominating feedback.

    BNZ’s Senior Economist Doug Steel remarked, “Comparing across our key trading partners, New Zealand has the only PSI in contraction. Our neighbour Australia is the closest comparison, but their equivalent PSI is sitting more comfortably at 50.8.”

    USD/JPY Daily Outlook

    Daily Pivots: (S1) 155.17; (P) 155.88; (R1) 156.33; More…

    Intraday bias in USD/JPY is back on the downside with breach of 154.97 temporary low. Sustained break of 55 D EMA (now at 154.61) will extend the fall from 158.86 to 38.2% retracement of 139.57 to 158.86 at 151.49 next. Nevertheless, firm break of 156.67 resistance will argue that the pull back has completed, and turn bias back to the upside for retesting 158.86 high instead.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    21:30 NZD Business NZ PSI Dec 47.9 49.5
    07:00 GBP Claimant Count Change Dec 0.7K 10.3K 0.3K -25.1K
    07:00 GBP ILO Unemployment Rate (3M) Nov 4.40% 4.30% 4.30%
    07:00 GBP Average Earnings Excluding Bonus 3M/Y Nov 5.60% 5.50% 5.20%
    07:00 GBP Average Earnings Including Bonus 3M/Y Nov 5.60% 5.60% 5.20%
    10:00 EUR Germany ZEW Economic Sentiment Jan 15.1 15.7
    10:00 EUR Germany ZEW Current Situation Jan -93 -93.1
    10:00 EUR Eurozone ZEW Economic Sentiment Jan 16.9 17
    13:30 CAD CPI M/M Dec -0.70% 0.00%
    13:30 CAD CPI Y/Y Dec 1.70% 1.90%
    13:30 CAD CPI Median Y/Y Dec 2.50% 2.60%
    13:30 CAD CPI Trimmed Y/Y Dec 2.50% 2.70%
    13:30 CAD CPI Common Y/Y Dec 1.90% 2.00%

     



    Source link

  • 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

     



    Source link

  • 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.



    Source link

  • 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%

     



    Source link

  • 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

     



    Source link

  • BoJ’s Repeated Hawkish Signals Fuel Yen Rebound, Sterling Falters on Stagnant Growth Data

    BoJ’s Repeated Hawkish Signals Fuel Yen Rebound, Sterling Falters on Stagnant Growth Data


    Yen’s near term rebound gained momentum again today, supported by BOJ Governor Kazuo Ueda’s persistent messaging about a potential rate hike at next week’s policy meeting. Ueda’s repeated remarks are interpreted as laying the groundwork for markets to brace for a monetary policy shift. While recent polls as of last week indicated only a minority expectation of a January hike, the market are clearly undergoing recalibration. However, the current move in Yen against Dollar remains largely corrective, and a sustained reversal in the broader down trend trend would require further confirmation.

    Meanwhile, Sterling continues to face mounting pressure after UK GDP data highlighted stagnation in economic activity. Monthly GDP rose just 0.1% in November, falling short of expectations. More importantly, growth over the three months to November was flat. The data has heightened fears of a contraction in Q4. Adding to Sterling’s challenges, new MPC member Alan Taylor struck a dovish tone in his first public speech, noting that while inflation is nearing its endgame, the weakening economy justifies a return to more “normal” interest rates.

    For the week so far, Sterling remains the weakest performer among major currencies, with no signs of a sustainable rebound. Dollar is the second worst, as it continues to consolidate recent gains. . Yesterday’s softer-than-expected core CPI reading alleviated fears of a Fed policy reversal toward tightening, while a resurgence in risk appetite has kept the Dollar’s recovery momentum in check. Canadian Dollar rounds out the bottom three.

    On the other hand, Australian Dollar, buoyed by risk-on sentiment. However, the Aussie’s inability to extend its rally following robust employment data raises questions about its underlying strength. Yen is the second-best performer, with the potential to advance further as expectations for a BoJ policy shift solidify. New Zealand Dollar rounds out the top three, while Euro and Swiss Franc are mixed in the middle.

    Technically, the US stock markets are back into focus with yesterday’s strong rebound. It might be too early to call for resumption of record run in S&P 500. But price actions from 6099.97 are still clearly corrective looking. Downside is also supported above 5669.67 resistance turned support. So, break of 6099.97 remains in favor at a later stage, probably after Trump’s inauguration that clear out some uncertainties over his trade policies, as tariff could be raised just gradually to minimize the shocks to the economy.

    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.

    GBP/JPY Daily Outlook

    Daily Pivots: (S1) 190.78; (P) 191.91; (R1) 192.72; More…

    GBP/JPY’s breach of 190.06 temporary low suggests that fall from 198.94 is resuming. Intraday bias is back on the downside for 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 193.01 resistance will delay the bearish case and turn intraday bias neutral again.

    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
    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 7.2B 6.1B
    12:30 EUR ECB Meeting Accounts
    13:15 CAD Housing Starts Y/Y Dec 250K 262K
    13:30 USD Initial Jobless Claims (Jan 10) 210K 201K
    13:30 USD Retail Sales M/M Dec 0.50% 0.70%
    13:30 USD Retail Sales ex Autos M/M Dec 0.50% 0.20%
    13:30 USD Import Price Index M/M Dec -0.10% 0.10%
    13:30 USD Philadelphia Fed Manufacturing Jan -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

     



    Source link

  • 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

     



    Source link

  • 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

     



    Source link

  • 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

     



    Source link

  • Dollar Gains Momentum as Fed Cuts Come Into Question

    Dollar Gains Momentum as Fed Cuts Come Into Question


    The US markets last week were shaped by two dominant themes: uncertainty surrounding trade policies of the incoming US administration and the impact of robust US economic data. Initial market confusion, driven by ambiguous signals regarding tariffs, created significant volatility. However, this indecisiveness gave way to clarity as strong US data reaffirmed the resilience of the economy, casting doubt on the likelihood of more Fed rate cuts in 2025.

    US Treasury yields surged as markets recalibrated their expectations for Fed policy, while equities faced notable selling pressure. This dual development provided a substantial boost to Dollar, which ended the week broadly higher. While some traders remain cautious, wary of surprises tied to US political developments, the Dollar’s upward momentum appears poised to persist, supported by the hawkish shift in Fed expectations and strong macroeconomic fundamentals.

    Across the Atlantic, Sterling faced intense pressure, falling sharply as concerns over fiscal de-anchoring took center stage. Rising UK gilt yields, coupled with a weakening Pound, highlighted fears of a negative spiral for the UK’s fiscal health. Investors are increasingly concerned that higher borrowing costs could exacerbate fiscal imbalances, particularly in an environment of tepid growth and stagflationary risks. Sterling’s underperformance made it the worst performer among major currencies.

    Elsewhere, Canadian Dollar emerged as the strongest currency of the week, but only for consolidating recent losses. Yen followed Dollar as the third strongest, benefiting from a late-week risk-off environment. On the other hand, Aussie and Kiwi, reflecting their risk-sensitive nature, were among the weakest performers. Euro and Swiss Franc ended in middle positions.

    Fed Pause to Extend, Rate Cuts in 2025 Less Certain, Hike Risks Emerge?

    Dollar and US Treasury yields soared last week, while equities took a hit, as a new idea gained traction: Fed might refrain from any rate cuts in 2025. This shift in market sentiment emerged after several catalysts converged, including robust employment data, jump in inflation expectations, and public remarks from key Fed officials. Traders are now rethinking their scenarios for the months ahead, pricing in the possibility that the central bank will remain on hold longer than previously thought.

    Driving the narrative is the unexpectedly strong December non-farm payroll report. Employers added 256k new jobs, surpassing consensus forecasts of 150k and even outpacing the monthly average of 186k for 2024. Unemployment rate dipped back to 4.1%, reinforcing the view that the labor market is in solid shape.

    These data points suggest not only a healthy labor market but also reacceleration in hiring after last year’s elections, bolstered by expectations of pro-business policies under the incoming Trump administration. If these dynamics persist, the labor market could tighten further, reigniting inflationary pressures. The timing of these numbers matters greatly too, as they have arrived just as the market was anticipating a more tempered economy heading into 2025.

    Another factor reshaping investor expectations is the January University of Michigan survey, which revealed a marked rise in inflation expectations. One-year inflation forecasts jumped from 2.8% to 3.3%, the highest since May, while long-run expectations climbed to 3.3%, not seen since June 2008. These developments highlight a growing concern that inflation could move beyond Fed’s comfort zone, especially with additional fiscal and trade policies fueling price pressures ahead.

    In parallel, the incoming Trump administration’s policy stance, in particular on trade, adds more complexity. While the president-elect denied reports of a shift to sector-specific tariffs out of concerns over political backslash, subsequent speculation about declaring a national economic emergency to justify tariffs has left markets unsettled.

    It should be emphasized that these scenarios are not mutually exclusive. Trump could still use emergency powers to target specific sectors or countries. This uncertainty is likely to persist at least until his inauguration on January 20.

    Looking at Fed, three key takeaways have taken form. First, a pause in January appears virtually locked in, with robust data and upbeat official commentary reinforcing the case for no immediate move. Second, markets are now leaning toward the next cut being postponed until May, representing a prolonged window of inactivity. Third, there is a growing notion that Fed could deliver just one cut in 2025 or potentially none at all, should inflation remain elevated and growth hold steady.

    Meanwhile, central bank communication has echoed these changing expectations. Former rate-cut proponents at Fed have begun to indicate growing consensus that policy easing may be nearing an end. However, it should be clarified that Fed Governor Michelle Bowman described December’s cut as the “final step” in the “recalibration” process only. She stopped short of declaring an outright end to the cycle. Still, Bowman’s words imply that a higher threshold for further reductions is now in play.

    Adding to the hawkish tilt, analysts from Bank of America have raised the possibility of a Fed rate hike rather than additional cuts. Such a scenario isn’t the baseline, given that policies are still restrictive, despite being close to neutral. Fed appears content to let existing policy restrictions work their way through the economy for now.

    However, significant acceleration in core inflation—particularly if it exceeds 3%—could force Fed policymakers to reconsider their stance. But then the bar for a hike is also high.

    DOW Correction Deepens, 10-Year Yield and Dollar Index Power Up

    Technically, DOW’s correction started to take sharp as the decline from 45703.63 resumed last week. Two near term bearish signal emerged recently, rejection by 55 D EMA and break of rising channel support.

    Further fall is expected as long as 55 D EMA (now at 43504.46) holds, targeting 38.2% retracement of 32327.20 to 45073.63 at 40204.49. Nevertheless, this decline is seen as correcting the rise from 32327.20 only. Hence strong support should be seen from 40204.49 which is close to 40k psychological level, to contain downside.

    Also, the broader US equity markets remain relatively resilient, with S&P 500 and NASDAQ hold well above support levels at 5669.67 and 18671.06, respectively. These two levels will need to be decisively broken to confirm broader medium-term corrections. Without such breaks, the overall market appears to be in a sideways consolidation phase, with DOW underperforming.

    10-year yield’s rally from 3.603 reaccelerated last week and powered through 61.8% projection of 3.603 to 4.505 from 4.126 at 4.683. Further rally is now expected in the near term to 4.997 high. And possibly further to 100% projection at 5.028. In any case, near term outlook will remain bullish as long as 4.517 support holds during any pullbacks.

    The bigger picture in 10-year yield still suggests that up trend from 0.398 (2020 low) is ready to resume. Consolidations from 4.997 (2023 high) should have completed at 3.603 already.

    It may still be a bit early, but this bullish medium term scenario is getting closer. Firm break of 4.997 will target 38.2% projection of 0.398 to 4.997 from 3.603 at 5.359.

    Dollar Index’s rally from 100.15 continued last week and remains on track to 61.8% projection of 100.15 to 108.87 from 105.42 near term target. Decisive break there will target 100% projection at 113.34. In any case, near term outlook will stay bullish as long as 107.73 support holds.

    In the bigger picture, Dollar index now looks on track to retest 114.77 key resistance (2022 high). But more importantly, considering the strong support from rising 55 M EMA, it might also be ready to resume the long term up trend from 70.69 (2008 low), with its sight on 61.8% projection of 89.20 to 114.77 from 100.15 at 115.95.

    Fiscal De-anchoring Fears Send UK Bond Yields Soaring, Pound Plunging

    The UK also found itself at the center of market attention last week, with 10-year Gilt yield surging to its highest level since 2008. At the same time, Sterling sank to a more-than-one-year low against Dollar.

    The simultaneous rise in bond yields and depreciation of the currency has raised alarm bells, as some analysts interpret it as a sign of fiscal de-anchoring. In this scenario, higher yields push up borrowing costs, compounding fiscal worries and creating a negative feedback loop.

    Investors have increasingly voiced concern about stagflationary environment in the UK, marked by both subdued economic growth and rising inflationary pressures. The Autumn Budget, with its array of tax and fiscal measures—including an increase in employers’ national insurance contributions—appears to have hindered economic activity to a greater extent than initially expected.

    Comparisons to the “Truss Crisis” of 2022 have naturally emerged. Back then, the mini-budget proposed by Prime Minister Liz Truss and Chancellor Kwasi Kwarteng triggered a dramatic collapse in Sterling from 1.16 to 1.05 against Dollar, alongside a sudden spike in Gilt yields. Those moves, however, were entirely reversed within a few weeks once both the Chancellor and Truss resigned, paving the way for a change in policy direction.

    The scope of last week’s market shifts is notably smaller by comparison, providing a measure of reassurance that the current situation may not descend into a repeat of that crisis. Nonetheless, market sentiment appears less likely to stabilize quickly this time, as there is no indication of immediate change in key government positions.

    Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves are expected to remain in office despite the current headwinds, which differs markedly from the abrupt reshuffling seen in 2022. Without a rapid pivot in fiscal policy, the overhang of higher borrowing costs and fragile investor confidence could persist, prolonging downward pressure on Sterling and upward pressure on bond yields.

    The confluence of looming stagflation, renewed fiscal anxieties, and limited policy flexibility casts a shadow over Sterling’s outlook. Where the pound plummeted sharply during the Truss episode—only to bounce back swiftly—the new environment suggests a more gradual but persistent decline.

    Technically, with last week’s strong rally, EUR/GBP’s is now back on 0.8446 resistance, which is close to 55 W EMA (now at 0.8444). Decisive break there will firstly confirm medium term bottoming at 0.8221, after drawing support from 0.8201 (2022 low). Further rally should be seen to 0.8624 cluster resistance ( 38.2% retracement of 0.9267 to 0.8221 at 0.8621), even as a correction. Reactions from there would then decide whether the whole down trend from 0.9267 (2022 high) has reversed.

    As for GBP/CHF, it has clearly struggled to sustain above flat 55 W EMA, which kept outlook neutral at best. Break of 1.1106 support will indicate that rebound from 1.0741 has completed, and deeper fall should be seen back to this support. More importantly, downside acceleration below 1.1106 will raise the chance that fall from 1.1675 is resuming the long term down trend, which could send GBP/CHF through 1.0741 to retest 1.0183 (2022 low) at least.

    AUD/USD Weekly Report

    AUD/USD’s break of 0.6169 key support level last week confirms larger down trend resumption. Initial bias stays on the downside this week for 61.8% projection of 0.6687 to 0.6198 from 0.6301 at 0.5999. For now, outlook will stay bearish as long as 0.6301 resistance holds, in case of recovery.

    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 0.6587) holds.

    In the long term picture, prior rejection by 55 M EMA (now at 0.6846) is taken as a bearish signal. But for now, fall from 0.8006 is still seen as the second leg of the corrective pattern from 0.5506 long term bottom (2020 low). Hence, in case of deeper fall, strong support should emerge above 0.5506 to contain downside to bring reversal. However, this view is subject to adjustment if current decline accelerates further.



    Source link