Greenback slides ahead of retail sales, China's exports fall

Forex News and Events

US data to remain a supporting role ahead of January 20th (by Arnaud Masset)

It has been a busy week for financial markets and especially the FX market as the US dollar, which rallied strongly after the US elections, accelerated its debasement as Trump’s first press conference disappointed. The dollar index rose almost 1% ahead of the conference but quickly reversed gains, sliding as much as 2% since then, down to 100.72 before stabilising at around 101.30. The market does not expect much from Trump’s investiture next week as it will most likely be in the same vein. Against this backdrop, we expect the market will pay increasing attention to US fundamentals and to the Federal Reserve. Obviously this will not happen overnight as investors still expect a lot from the Trump presidency; however, they have also started to realised that they were somewhat overoptimistic.

December US retail data is due this afternoon. After disappointing substantially in November (0.1%m/m versus 0.3%% median forecast), the headline measure is expected to rise 0.7%m/m in December amid a substantial boost from motor vehicle sales and rising oil prices. The gauge excluding automobiles and service stations are expected to rise 0.4%m/m in December versus 0.2% in November. The market will be increasingly sensitive to a reverse in the retail sales positive trend as it would dampen the growth outlook (as a reminder consumer expenditure contributes to almost two-thirds of the US total GDP figure). We remain bearish USD and expect high quality commodity and EM currencies to continue rallying. However, in the short-term, the Trump story will remain the main driver in the FX market, meaning that event risk is definitely something to monitor, especially the President-elect's Twitter feed.

ECB minutes reveal its political concerns for 2017 (by Yann Quelenn)

Following the release of the much-awaited Fed minutes, yesterday the ECB released its account of its December Monetary Policy Meeting. These minutes clearly indicate that economic and political uncertainty are now important central bank drivers. The result of the Brexit and Italian referendums are clearly straining EU unity. However, these uncertainties, as long as they are controlled, are helping to the ECB by lowering the single currency's value. Indeed, a strong euro would not be beneficial for economic growth in the Eurozone, which is currently stalling below 2%.

We recall that the central bank has extended its asset-purchase program by nine months, adding around €540 billion to the economy. In our view, the reduction of the amount of the asset-purchase program is mostly due to address the scarcity of the bonds. We strongly disagree that this should be viewed as an act of dovishness regarding the total amount of bonds to be purchased. The minutes are also indicate some concerns regarding inflation, which is not picking up even though higher energy prices should be adding upside pressures on consumer prices. All in all, no major surprises from the ECB. Eurozone reflation will be the yardstick of the ECB’s monetary policy this year.

Limited info in China export fall (by Peter Rosenstreich)

China trade data fell slightly in December, primarily on high base effect. Trade balance USD exports contracted -6.1% against -3.3% expected and from 0.1% in November. USD imports rose 3.1% above expectations from 3.0% but slowed significantly than 6.7% in November. Commodity imports were a mixed picture as December volumes fell but value increased. There is not much we can take from this data point, however we do continue to see an improvement in Chinese trade data as the global economic backdrop marginally strengthens. 

Of course, the political uncertainty emulating from President-elect Trump's volatile trade policy continues to haunt investors. Trump's appointment trifecta of severe China trade critics in Navarro, Ross and Lighthzer indicates that adversarial trade policy between US-China is coming. As we indicated in our research “Outlook 2017”, this collision is one of our clearest themes for the year. And the end-result will be a resilient regional trade block led by China. Elsewhere, rumors indicate that the PBoC has directed the bank to provide monthly reports on the balance of inflow and outflows. Proof that outflows are being neutralised by inflow. If true, this would be further evidence that China is tightening CNY movement through capital controls to halt RMB depreciation. Resulting liquidity issues should pressure CNH markets into giving the yuan some form of short-term relief from selling pressure.

USD/CAD - Lack of Follow-Through.

 

The Risk Today

Yann Quelenn

EUR/USD is pushing higher. 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 bounced back after breaking hourly support at 1.2083 (25/10/2016 low). The technical structure still looks bearish. Hourly resistance is given at 1.2262 (12/01/2016 high). 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 after exiting the range between 116.12 and 118.66 for two months. Hourly support is 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 continues to weaken. Yet, the pair is still moving between hourly resistance given at 1.0344 (15/12/2016 high) and support at 1.0021 (08/12/2016 low). Key support is given at the parity. Expected to decline towards 1.0021. 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.

Resistance and Support:

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
1.0642	1.2208	1.0082	114.6
1.0341	1.2083	0.9929	112.88
1.0000	1.1841	0.9632	111.36
0.9613	1.052	0.9522	101.2