ECB's Nowotny: Reaching Inflation Target Is 'Difficult'

Good morning,

- Copper pressured by slowing China’s infrastructure investments.

- IEA Report Sends Oil to 12-Year Low, Gold Leverages on Volatility.

- Precious Metals (USD): Gold 1093.02 (+0.52%), Silver 14.05 (+0.19%), Platinum 824.25 (-0.35%), Palladium 492.30 (-0.51%).

- Japan's PM Abe: Japan's economic fundamentals are solid.

- ECB’s Nowotny: Reaching Inflation Target Is ‘Difficult’ -Calls Decline In Oil Price ‘Extraordinary’.

- Hong Kong Dollar Torn Between China and Markets.

- GBPUSD Slips Below Its 2010 Low On Very Dovish BoE Carney. Read below elaborating on ‘’doviseness’’.

- Bank of England Governor Mark Carney said on Tuesday he had no set timetable for raising interest rates and avoided giving his trademark steer on what was likely to happen to borrowing costs against a volatile global economic backdrop. Carney, making his first speech of 2016 as growth hit a quarter-century low in China while wages rise more slowly at home, said he would only commit to keeping the bank focused on its inflation target. "That means we'll do the right thing, at the right time, on rates," he said. Britain's economy has grown strongly over the past two years. Carney said British demand would probably remain strong but China and other emerging economies posed risks. He said Britain's comparatively high exposure to the weakness of the world economy was one reason why the BoE was not following the U.S. Federal Reserve which last month increased rates for the first time in nearly a decade. British wage growth has been weaker than he expected - and below the 3 percent level Carney had previously identified as propitious for a rate hike. On Tuesday he said the level of unemployment which would trigger higher inflation might be lower than the BoE's current 5 percent estimate. The BoE would also watch for signs that low inflation was getting entrenched by less generous wage deals. Earlier on Tuesday, the International Monetary Fund's chief economist said he expected the BoE to wait for strong evidence of faster wage growth before raising rates.

- $CAD, $AUD, and $NZD are expected to be the most active majors vs $USD with 1W implied volatility at 14.43, 13.32, and 13.16 respectively.

- That tepid New Zealand CPI figure will weigh heavy for a more responsive RBNZ.

- Global financial markets seem to be overreacting to falling oil prices and the risk of a sharp downturn in China's economy, the chief economist of the International Monetary Fund said on Tuesday. Speaking after the IMF cut its global growth forecasts for the third time in less than a year, Maurice Obstfeld also said it was critical that China is clear about its overall economic strategy, including its currency. "It's not a stretch to suggest that (markets) may be reacting very strongly to rather small bits of evidence in an environment of volatility and risk aversion," Obstfeld said at a news conference.

- USD/CAD rallied late to finish higher once again in a remarkable streak of 13 consecutive daily gains for the pair. That sets the stage for Wednesday's razor thin Bank of Canada decision. We take a closer look at three potential outcomes. The short GBPAUD trade was closed at 2.0435 for a 335-pip profit, leaving three trades in progress. At the start of the year, the BOC decision was thought to be a foregone conclusion. Poloz had been optimistic in his recent comments, suggesting that manufacturing and other non-commodity exports were beginning to pick up the economic slack from resources. Resource prices have plummeted. Since the December 2 BOC meeting oil is down $13, or 32% and that's made tomorrow's BOC decision intriguing. The OIS forward market prices a 49.2% chance rates are left unchanged and a 50.8% chance of a cut. Cut: This is what Poloz should do. The drop in oil prices leaves Canada extremely vulnerable to a shock and if/when it hits, then it will be too late for the BOC to ride to the rescue.

The closest thing Poloz did to dropping a hint when he spoke on Jan 7 was not mentioning that the current policy stance is appropriate. High Canadian housing prices are a reason not to lower interest rates but at this point, that battle is better left to government regulators. The damage might not be that great and the kneejerk may fizzle because it's likely to be accompanied by soothing words on the economy. No cut, no hint; The economic data in Canada has been solid, especially jobs numbers. Poloz has been a big believer in the power of the weak Canadian dollar and he may prefer to let that do his work while keeping some power dry. On a risk-reward basis, there's a case for selling USD/CAD now and trading the headlines on the decision. No move but signaling a cut; He could be worried that yet-another surprise cut would spark concern in the broader economy and undermine confidence. A sharp drop in USD/CAD on the 'no cut' headlines may be a buying opportunity because the promise of a cut is almost as good as the real thing.

- Major news for today: UK: Labor Market Report, US Housing Starts, US CPI, BoC Rate Statement.

- Bank of England Governor Mark Carney said on Tuesday he had no set timetable for raising interest rates and avoided giving his trademark steer on what was likely to happen to borrowing costs against a volatile global economic backdrop. Carney, making his first speech of 2016 as growth hit a quarter-century low in China while wages rise more slowly at home, said he would only commit to keeping the bank focused on its inflation target. "That means we'll do the right thing, at the right time, on rates," he said. Britain's economy has grown strongly over the past two years and last summer Carney said a decision on when .- In an accelerated up move, USD/CAD has achieved its advocated target of 1.45 after breaching above a massive upward channel, notes SocGen Techs. "In the process the pair has confirmed a double bottom and has crossed above ultimate retracement level (76.4% at 1.45) of 2002-2007 down move. Projected target for the pattern stands at 1.59/1.62 which also corresponds with 2002 highs. If we drop down to daily chart, the pair has broken above a multi month ascending channel which points towards continuation in up move. The pair is likely to head higher initially towards 1.4690 with next target 1.4945/1.50, a projection for the up move. Monthly RSI is now testing a graphical ceiling which suggests possibility of retracement once 1.4945/1.50 levels are achieved. Short term pullback is likely to be cushioned at 1.42 while multiyear channel at 1.38/1.3760 will be a key support," SocGen projects. Turning to EUR/UD, SocGen thinks that a break above the short term descending channel limit around 1.1060/85 would decide if the current recovery extends. "EUR/USD has been tracing a H&S at pivotal support of 1.05, confluence of multi-decade channel and down sloping one since 08. The pair faced resistance at highs of March’15 at 1.1060/85 where it is forming the right shoulder of a H&S. Only a move above will indicate possibility of further rebound," SocGen adds. Fianlly in USD/JPY, SocGen thinks that the pair is approaching towards neckline of weekly H&S pattern around 116. "After facing resistance at multiyear trend (126), USD/JPY is evolving within a H&S formation. The pair recently violated multi month channel and is approaching towards neckline at 116. A break below will confirm a deeper correction towards September 2014 highs of 110 with intermittent target at 114. 123.70 should cap upside," SocGen argues.

- An end to sanctions on Iran has driven global crude futures to 12-year lows and brought sub-$20-a-barrel oil in sight, although for some producers that is already a painful reality. This unfortunate group sells some physical crude cargoes at prices that are closer to $10 a barrel, thanks to an abundance of the "sour" grades they produce and a consumer base that favors higher-quality "light" oils from other origins. Producers of certain crudes from Mexico, Venezuela, Canada and Iraq are bracing for worse to come as Iran - now free of international sanctions - prepares to offload hefty supplies of heavy sour grades onto export markets. "The drastic fall in outright prices is wreaking havoc on heavy crudes which are typically sold at deep discounts to benchmark crudes," said analysts at JBC Energy. In the Canadian town of Hardisty, Alberta, buyers can pick up a barrel of crude known as Western Canadian Select SHRWCSMc2 - one of North America's largest heavy crude oil streams - for less than $15, while producers need a price above $43 to make money. And while some oil-dependent producing countries like Venezuela and Russia have seen their economies suffer, many refiners are licking their chops. Some Asian oil importers are soaking up record volumes of Mexican crude in particular, as fixed-dollar discounts to rapidly falling benchmarks have slashed sales prices from the country to unprecedented lows. In early-December, Mexico's state-owned Pemex offered Asian buyers a discount on Maya crude for January lifting of about $12 a barrel to the underlying price marker, an average of Oman and Dubai prices. But with oil prices falling more than $10 since then, that discount effectively cut the price in half to about $12.50 a barrel on Monday

- In 2015, faced with complicated international environment and increasing downward pressure on the economy, the Central Party Committee and the State Council have maintained the strategic focus, comprehensively arranged both domestic and international tasks, adhered to the general work guideline of making progress while maintaining stability, actively adapted to and led the new normal, guided new practices with new theories, strived for new development with new strategies, innovated macro-regulation, deepened the structural reform and pushed forward “mass entrepreneurship and innovation”. As a result, the economy has achieved moderate but stable and sound development. According to the preliminary estimation, the gross domestic product (GDP) of China was 67,670.8 billion yuan in 2015, an increase of 6.9 percent at comparable prices. Specifically, the year-on-year growth of the first quarter was 7.0 percent, the second quarter 7.0 percent, the third quarter 6.9 percent, and the fourth quarter 6.8 percent. The value added of the primary industry was 6,086.3 billion yuan, up by 3.9 percent; the secondary industry 27,427.8 billion yuan, up by 6.0 percent; and the tertiary industry 34,156.7 billion yuan, up by 8.3 percent. The gross domestic product of the fourth quarter of 2015 went up by 1.6 percent on a quarter-on-quarter base.

- Major news for today: German ZEW, Euro Zone CPI, US Housing Market Index.