Aussie job market surprised to the upside, Beige Book: modest growth in the US

Forex News and Events

Beige Book: modest growth across the US (by Arnaud Masset)

Not surprisingly, the US economy expand at a moderate pace during the period starting late November to early January, latest Beige Book showed. Most districts reported an expansion of the economic activity while New York and Kansas City districts reported a stagnation. Half of the districts are positive about the economic growth outlook. The labour market and consumer spending continued to improve, according to the report, which helped to mitigate the effect of the strong dollar and the persistent weakness of energy prices. As expected, the report showed that most manufacturing sectors were struggling due to the strength of the greenback.

All in all, this report showed that the US economy sent mixed signal and that the future is quite foggy - for both growth and inflation levels. Indeed, the combination of a strong dollar, geopolitical risks, low commodity prices and equity sell-off across the globe have started to undermine the investors’ confidence in the ability of the US economy to reach the Fed’s target in term of inflation. A rate hike in March is now almost out of the table as investors focus on June’s meeting. It would already be a miracle if Janet Yellen is able to hike rate twice this year. For now the US dollar is moving sideways, with the dollar index moving around 99.00, but remains within its uptrend channel.

Markets expect a dovish BoE (by Peter Rosenstreich)

Traders will be monitoring the Bank of England’s rate decision today. However, the rate decision itself is expected to be a non-event with no changes in policy being the universally accepted result. The primary question concerning the meeting minutes, which will be released alongside the decision, is whether the lone dissenter McCafferty will abandon his call to tighten policy. We suspect he will retain his hawkish vote. The rates markets are already priced for no tightening until deep into 2017, therefore a vote of 9-0 should have limited effect on the much-maligned GBP. The UK economy has not improved along the BoE predicted path with GDP growth being revised lower, wage growth stagnating (despite falling unemployment) and energy prices sharply declining, all of which will prompt further disinflationary impulse. Overall, the committee's tone in the minutes will probably express a more downbeat view of the UK economic outlook. Given the backdrop of volatility in global financial markets and falling oil prices there could be extended discussions concerning the spillover into UK inflation and growth. Yet, outright signaling of policy adjustments is unlikely until members get to view February's inflation report. We remain negative on the GBPUSD with bearish targets located at 1.4230 range low. EURGBP bullish momentum remains unchanged with an initial resistant/target located at 0.7600. Elsewhere, the ECB will publish December's meeting minutes. Traders will be searching for division amongst governing council members and the possibility of further easing.

Strong Australian jobs trend (by Yann Quelenn)

Australian jobs data released earlier shows that December’s employment change printed above expectations, yet negatively, at -1k jobs for December. Lingering low oil commodities continue however to weigh on the Australian labour market. We are closely monitoring the country's jobs situation as most of its revenue comes from commodities for which downside risks are still significant. In addition, the China slowdown is concerning as it is Australia’s most important economic partner.

Australia definitely needs revenue from more diverse sectors, outside of commodities. For one, the country's ageing population ensures the addition of jobs to the healthcare sector and tourism also remains very strong. However, Australia is also experiencing a recent surge in its services sector which has helped to offset losses in the resource industry. Finally, we remain concerned by the inflation level, below the RBA’s target band of 2%-3% but feel nevertheless that there is still some room for the central bank. Therefore, we do not expect any rate cuts for the February meeting and we remain bearish on the AUDUSD. 0.6800 is on target.

USD/CAD - Never-Ending Increase.

The Risk Today

Yann Quelenn

EUR/USD keeps on riding the downtrend channel. Hourly resistance may be found at 1.1096 (28/10/2015 low) while hourly support can be found at 1.0524 (03/12/2015). Expected to further decline. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD is weakening and is now trading below 1.4500. Hourly resistance is given at 1.5242 (13/12/2015 high). Stronger resistance can be found at 1.5336 (19/11/2015 high). Expected to show continued weakness. The long-term technical pattern is negative and favours a further decline towards the key support at 1.4231 (20/05/2010 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY is moving sideways. Hourly resistance lies at 123.76 (18/11/2015 high). Expected to further decline towards hourly support at 116.18 (24/08/2015 low). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 116.18 (24/08/2015 low).

USD/CHF's uptrend momentum keeps going as long as the pair remains in the upward channel. Support is located at 0.9876 (14/12/2015 low). Hourly resistance can be found at 1.0125 (05/01/2015 high). Expected to monitor toward support implied by uptrend channel. In the long-term, the pair has broken resistance at 0.9448 and key resistance at 0.9957 suggesting further uptrend. Key support can be found 0.8986 (30/01/2015 low). As long as these levels hold, a long term bullish bias is favoured.

Resistance and Support: