Trumps comments hurts USD bullish momentum
|Forex News and Events
US data in focus but may fail to provide boost to the greenback (by Arnaud Masset)
A fresh batch of US data is due for release later today. The market is now hungry for any clue signalling an acceleration of the US economy, especially since December's retail sales came in roughly on the soft side last Friday. The headline inflation gauge is expected to have risen 2.1%y/y in December versus 1.7% expected, thanks to a sharp increase in crude oil and food prices (the WTI stabilised above the $50 threshold). On the other hand, the core measure, which excludes the most volatile components such as energy and food, is anticipated to come in unchanged at 2.1%y/y. Industrial production is also expected to have picked up in December with the median forecast surging to +0.6%m/m after a contraction of 0.4% in November. However, it will require more than just wishful thinking to reverse the current negative momentum that began in November 2014. It is true that there have been recent improvements such as the stabilisation of the manufacturing payroll. However, the US dollar's renewed strength should inevitably weigh on the final reading.
In the FX market, the USD took a hit yesterday after Donald Trump declared its value was too high. The dollar index slid 1.34%, down to 100.26, as the EUR rose 1%, the GBP surged almost 3% - thanks to Theresa May’s comments - and the JPY was up 1.30%. Nevertheless, the greenback partially reversed losses this morning as traders have been taking profits. We expect the dollar to continue losing ground, especially against higher yielding currencies such as the Aussie and Kiwi as US yields continue to adjust lower.
Bank of Canada set to remain on hold (by Yann Quelenn)
The Bank of Canada will likely hold its rates unchanged at 0.5% this afternoon. In our view, no major monetary policy change should happen until the second quarter of this year and the BoC will prolong its patient stance which it initiated in 2015 when the BoC cut rates twice.
The Canadian economy remains resilient. Inflation is still stalling around 1% y/y. Higher energy prices are adding upside pressures on consumers. However, Canadian exports may be threatened if Trump's border tax passes. Fundamental data is not particularly significant and market activity is somewhat soft. Indeed, the housing bubble has not popped yet, but some cooling has been noticed.
In our view, data is clearly not sufficient to trigger any particular change in monetary policy, which is why the BoC should remain on hold particularly as they will need time to understand the real affect of Trump’s presidency.
Technically speaking, the USDCAD has been on a bullish trend since May 2016 despite the loonie strengthening in the last week due to the rebound in gold prices.
| Today's Key Issues | Country/GMT |
|---|---|
| Dec Claimant Count Rate, exp 2,30%, last 2,30% | GBP/09:30 |
| Dec Jobless Claims Change, exp 5000, last 2400 | GBP/09:30 |
| Nov Average Weekly Earnings 3M/YoY, exp 2,60%, last 2,50% | GBP/09:30 |
| Nov Weekly Earnings ex Bonus 3M/YoY, exp 2,60%, last 2,60% | GBP/09:30 |
| Nov ILO Unemployment Rate 3Mths, exp 4,80%, last 4,80% | GBP/09:30 |
| Nov Employment Change 3M/3M, exp -35000, last -6000 | GBP/09:30 |
| Nov Construction Output MoM, last 0,80% | EUR/10:00 |
| Nov Construction Output YoY, last 2,20% | EUR/10:00 |
| Dec CPI MoM, exp 0,50%, last -0,10%, rev -0,10% | EUR/10:00 |
| Dec F CPI YoY, exp 1,10%, last 1,10% | EUR/10:00 |
| Dec F CPI Core YoY, exp 0,90%, last 0,90% | EUR/10:00 |
| 13.janv. MBA Mortgage Applications, last 5,80% | USD/12:00 |
| Dec CPI MoM, exp 0,30%, last 0,20% | USD/13:30 |
| Dec CPI Ex Food and Energy MoM, exp 0,20%, last 0,20% | USD/13:30 |
| Dec CPI YoY, exp 2,10%, last 1,70% | USD/13:30 |
| Dec CPI Ex Food and Energy YoY, exp 2,10%, last 2,10% | USD/13:30 |
| Dec CPI Core Index SA, exp 249,753, last 249,357 | USD/13:30 |
| Dec CPI Index NSA, exp 241,508, last 241,353 | USD/13:30 |
| Dec Real Avg Weekly Earnings YoY, last 0,50%, rev 0,20% | USD/13:30 |
| Dec Real Avg Hourly Earning YoY, last 0,80% | USD/13:30 |
| Dec Industrial Production MoM, exp 0,60%, last -0,40% | USD/14:15 |
| Dec Capacity Utilization, exp 75,40%, last 75,00% | USD/14:15 |
| Dec Manufacturing (SIC) Production, exp 0,40%, last -0,10% | USD/14:15 |
| 18.janv. Bank of Canada Rate Decision, exp 0,50%, last 0,50% | CAD/15:00 |
| Jan NAHB Housing Market Index, exp 69, last 70 | USD/15:00 |
| Bank of Canada Releases January Monetary Policy Report | CAD/15:00 |
The Risk Today
Yann Quelenn
EUR/USD's momentum is still largely positive despite some consolidations. Strong resistance is given at 1.0874 (08/12/2016 high). Hourly support lies at 1.0341 (03/01/2017 low). Expected to see continued increase. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.
GBP/USD has increased sharply, exiting hourly support. The technical structure seems to reverse. Hourly resistance is given at 1.2416 (17/01/2016 high). Expected to show further consolidation. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY continues to decline within a downtrend channel. The road is wide-open towards hourly support given at 113.81 12/01/2017 low). Expected to see further downside moves. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF's momentum is clearly bearish. The pair has broken support at 1.0021 (08/12/2016 low). Hourly resistance is given at a distance at 1.0344 (15/12/2016 high) . Key support is given at the parity. The road is wide-open for further decline. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
| EURUSD | GBPUSD | USDCHF | USDJPY |
|---|---|---|---|
| 1.13 | 1.3121 | 1.1731 | 125.86 |
| 1.0954 | 1.2775 | 1.0652 | 121.69 |
| 1.0874 | 1.2432 | 1.0344 | 118.66 |
| 1.0675 | 1.2169 | 1.0036 | 113.05 |
| 1.0341 | 1.1986 | 0.9929 | 112.88 |
| 1 | 1.1841 | 0.9632 | 111.36 |
| 0.9613 | 1.052 | 0.9522 | 101.2 |
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