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Risky assets came off a little overnight but nothing too serious after US banks reported robust earnings yesterday. Today all the focus will be on the signing ceremony of phase one of the US/China trade deal and the details released thereafter. These details will be very important to the market and Mnuchin was verbally watering down expectations overnight, saying that tariffs on China to remain in place until phase 2. Could it be a case of buy the rumour and sell the fact. The market has been very upbeat about this phase one deal and if details are omitted then we may see risk being sold off. As mentioned yesterday USDJPY struggled to break above the 110.25 area and is now sitting around 109.80, it needs to be seen what comes out after this deal is signed. We now believe there may be a chance that we test 109.00 as feel the euphoria surrounding the deal has very much come and gone. US core CPI came in a little weaker than expected yesterday 0.1% vs 0.2% expected which weighed somewhat on the greenback. 

 

EURUSD enjoyed a move higher yesterday to 1.1140 (50 dma) on the back of the weaker US CPI however, it failed to continue higher and is now around middle of the range at 1.1120 ish. We are still of the belief that the single currency will be in a range 1.1140/1.1060 with the bias still tilted to the downside. Today we have EZ industrial production figures which will show us whether there has been any improvement in manufacturing. 

 

GBPUSD like EURUSD enjoyed a good move higher yesterday testing a high of 1.3042 overnight. This is as a result of the weaker US data and probably weak longs as we mentioned in our Monday report. However, this morning cable has subsequently come lower again down to 1.2985 on the back of comments from BoE’s Saunders (who is a dissenter) who said “it probably will be appropriate to maintain an expansionary monetary policy” and “possibly cut rates further”. He also suggested that should economic data continue to deteriorate then he would expect more MPC members to join in. Immediate range remains 1.3040/70 and 1.2955. GBPEUR is 1.1675.

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Believe it or not but it’s true, S&P has made new highs and risky assets  continue to move higher as the market awaits the phase one deal signing ceremony. The Treasury has removed China as a currency manipulator, this appears to be more symbolic than anything else USDCNH is trading around 6.8870,  which shows quite a lot of strengthening in the Yuan ahead of the signing. Chinese trade data overnight was positive. It just needs to be seen what happens after the deal is signed and whether any stipulations or amendments arise. As such USDJPY has continued to enjoy a move higher hitting a high of 110.20 overnight, it needs to be seen now whether it can continue higher once the trade deal euphoria subsides, bollinger band resistance comes in at 110.26 on the daily chart which we believe will be difficult to overcome initially with support now at 109.00. The FED Williams speaks today and we are pretty sure that he’ll say he’s pretty happy for now where monetary policy is. In terms of US data today we have CPI which is expected at 0.2% compared to 0.3% previous.

 

EURUSD traded a high of 1.1145 overnight but has since come off a little as there’s a report from Moody’s which reveals its outlook for sovereign creditworthiness in the euro area for 2020 has changed to negative from stable. On the political front there is a chance that Italy might go to a snap election before a pending constitutional referendum if League wins a general vote on Jan 26. For now the mammoth expiry at 1.1100 is keeping the single currency supported with 1.1160 being the main hurdle to overcome. We still believe that rallies offer good opportunities to sell as still see EURUSD testing lower, support lies at 1.1080.

 

GBPUSD weaker than expected data yesterday in the way of industrial production and GDP weighed on Sterling. The market now seems to be convinced that a rate cut is coming in May(90%) or a 50/50 chance that it could come as soon as January. Should it come that soon then we believe there is a good chance that cable can trade as low as 1.2700. Later this week have CPI and retail which will dictate the next direction flow. On a lighter note Boris Johnson is “ very, very confident” that the EU trade deal will be done by the end of year. For today we believe 1.3000 will be good resistance and are looking a move initially to 1.2950 and possibly 1.2900. GBPEUR is 1.1665.

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Seems like groundhog day for risky assets as they keep on bouncing and going up. This week is the ceremony of the phase 1 deal signing which is where this support is coming from.  Lets see if Trump can extract as much positive spin out of it as he possibly can for markets. Last  weeks payrolls were a little weaker than expected but there were still signs of job growth which is what the FED would’ve been looking at. USDJPY is now trading around the high 109.’s and important resistance of 109.70/75, and with risk on the frontfoot there is a very good chance we test 110.115/20 support lies at 109.40.

 

EURUSD traded with a negative bias last week and was given very light support on Friday from the weaker NFP but nothing too exciting. We feel the single currency will remain in a range this week but still with a tilt to the downside, 1.1160-1.1040 should cover it. Later on the week we have IP data and GDP from Germany.

 

GBPUSD as we anticipated has fallen hitting a fresh 2 week low of 1.2965 this is as a result of an over long market following the Conservatives landslide win and the possibility of a rate cut becoming more real. Carney began proceedings last Thursday being very dovish on the UK economy , followed by Tenreyro on Friday saying “my indication is towards a rate cut if downside risks emerge” and finally Vlieghe on the weekend saying he’s “ready to cut interest rates if data does not improve” and that forthcoming interest rate meetings are very much live ones. Very much will depend on forthcoming data, November’s data was very bad so the market will be looking very closely at this weeks UK data of CPI and retail sales. The market now expects the BoE to cut interest rates around May, but Carney may cut even sooner to get ahead of the curve as he waits for fiscal stimulus from the Government. 1.3000/10 is now immediate resistance followed by 1.3020 and 1.3055. The danger now is the short term market gets itself short at poor levels ahead of the data and should the data come out better than expected then we should see a little relief rally which would offer better levels to sell cable. We still believe GBP goes lower and are looking for at least a test of 1.2900 with a break of this level looking at 1.2800. GBPEUR is 1.1675

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Risky assets continued their move higher overnight as the Iran story died down and euphoria has returned to the markets. USDJPY has managed to hold onto the gains from yesterday however, 109.70/.75 remains immediate resistance for now. Today is US jobs data and should we get a decent print, ( market expects 160K) therefore, anything over this together with strong wage inflation and unemployment print and we could see USDJPY  break this resistance en-route to 110.20. On the flip side should the data turn out poor then we should see USDJPY back down to 109.00 and possibly 108.65. Some FED speakers yesterday said they were happy where rates were at the moment with Evans going so far as saying that there could be no further rate cuts in 2020, today’s number may well change their views going forward.

 

EURUSD has again been very lack lustre however, one thing of note is that the single currency has been posting lower lows which indicates a strong possibility  we will test lower soon, which coincides with our view. Today is NFP and this should be the catalyst for the next move, should the print come out stronger then we should see a break of 1.1080 area and look towards 1.1035/40. Immediate resistance is at 1.1140 with a break above here targeting 1.1200.

GBPSUD traded lower yesterday on the back of Governor Carney’s dovish comments regarding the state of the UK economy. He said “there is a debate at the MPC over the relative merits of near term stimulus” and that “if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response”. These comments caught the market by surprise and dragged cable to a low of 1.3012 yesterday, for now there appears to be good buying interest around 1.3000 and subsequently GBP traded back up to 1.3080 later in the session. We were of the belief that GBP would suffer going into Q1 and these comments cement our view more. Earlier this morning BoE’s Tenreyro followed Carney’s dovish stance by saying “may vote for rate cut if uncertainties last” and “more stimulus may be needed if growth doesn’t recover”.   The fact we still have a no-deal Brexit looming and also the chance of a rate cut as soon as May 2020 should continue to weigh on GBP. Immediate resistance is at 1.3080 followed by 1.3140 and then 1.3170. On the downside a break of 1.3000 would open way for 1.2900. GBPEUR is 1.1780.

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Risk appears to be back on today as concerns over the Middle East tensions have subsided somewhat. There were no reported casualties from yesterday’s attacks and the market took this as a positive and as such we saw a jump in gold,oil and the US 10 yield. USDJPY is sitting around the session highs of 109.42 after hitting a low of 107.62 after Iran’s first missile strike. Support now  lies at 108.95, today we have a very big option expiry at 109.25 so we may gravitate towards that rate around expiry time however, ADP print was much better yesterday and if we get a good NFP print on Friday coupled with no more escalating tensions in the Middle East then there’s a good chance we could test the resistance area of 110.05/10. On the flipside a move through 108.95 and this would open the way for 108.60 and then 108.30.  US President Trump said in a  televised address that “Iran appears to be standing down,” and that “Iran will never be allowed to have a nuclear weapon. He also said the US will immediately impose additional financial and economic sanctions on Iran. 

 

EURUSD again been very subdued with very little action. For now we are hovering around 1.1100 and with chunky expiries around that level we can’t really see it moving too far from here at the moment.  Yesterday’s German factory orders were shocking -1.3% vs 0.2% expected highlighting that the Eurozone’s strongest economy is still very much struggling. We are still of the belief that the single currency will test lower, the main catalyst will be the US/Iran tensions and the NFP number tomorrow. Should we get a strong print then we can see it breaking the 1.1090 support area and test 1.1060 followed by 1.1030. On the topside we have resistance at 1.1140 followed by 1.1200.

GBPUSD yesterday tried pushing higher but stopped around 1.3170. During the European session it fell through the support area of 1.3140 and couldn’t get back above it. Cable was further weighed down by comments from EC president Ursula von der Leyen who warned that there would be tough talks ahead with regards to free trade negotiations. Mrs von der Leyen said the UK cannot expect free movement of goods and services without free movement of people, and there would be a “more distant partnership” between the UK and EU in future. Worse news for GBP came this morning from Governor Carney at The Future of Inflation Targeting Conference where he delivered a more dovish tilt to his speech, he said that economic growth in the UK had slowed below potential, persistent weakness could require a prompt response and more importantly said that QE,forward guidance and rate cuts are all part of tools at the disposition of the BoE. At this point cable was already trading near the sessions lows of 1.3070 and subsequently traded a low of 1.3017 which was very near our target yesterday. Going forward today we feel there is a chance if we can get below 1.3010/1.3000 then we should see 1.2900, on the topside resistance lies at 1.3085/90. GBPEUR is 1.1740.

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Iran’s retaliation happened overnight as missiles and rockets were launched at bases where US military was present.  Apparently 15 missiles were launched and 3 targets were hit but there is little news of US casualties. Initially this caused a big move in risk off with USDJPY nearly off 100 points hitting lows around 107.65 and Gold trading to a high of 1611.00. However, a lot of these moves were later unwound as news came out of very few casualties and the US downplaying the event.  The market now awaits Trump’s response as he said that the US would retaliate against any aggression from Iran and whether Iran will continue poking the US. The greenback has come back strong against most of its G10 counterparts but for now seems that moves will be susceptible to the US/Iran tensions. 108.60 remains resistance for now with support around 107.70/60.

 

EURUSD at the moment is trading in a mixed manner with very little direction. Yesterday’s as expected CPI print did not really help things. The longer it struggles to get back above 1.1200 again the likelihood of testing lower strengthens. We suspect much will depend on the strength of the USD, today we have ADP and then we have President Trump speaking for further clues. Levels very much remain 1.1200 and then 1.1230/35 and 1.1080. 

GBPUSD UK PM Johnson will tell EU Commission President Von Der Leyen that his govt is only interested in negotiating an FTA deal with the EU and to achieve it by year-end.He will also  say the UK isn’t interested in aligning to EU rules. As a result of the no-deal Brexit uncertainty as we have already mentioned we believe downside risks still persist. Yesterday we hit our low of the 1.3095 and it bounced off nicely to test a high of 1.3169 but has subsequently come off and we are trading now around 1.3120. The price action suggests we will test lower with a break of yesterday’s low of 1.3095 opening the way for 1.3010/1.3000. GBPEUR is 1.1795.

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Risk sentiment has seen some respite overnight as Iran and US leaders are talking tough rather than instant retaliation/escalation. We also think it’s way too premature to play down the significance of recent events, particularly given the US is said to be sending 2200 marines to the region. Gold hit 7 year highs and USDJPY hitting a high of 108.50. Going forward verbals will continue and as such we still think this will weigh on risky assets. Iran knows it cannot win against the US in an all out war scenario therefore, we have to wait and see what  measures Iraq comes back with and how this will affect the market going forward. It appears for now at least that the market is focusing more on the signing of the phase one trade deal between the US/China than the US/Iran tensions. Time will tell.

 

EURUSD gained some ground on the USD on the back of stronger PMI’s but we are still not convinced yet. 1.1230 still remains the level to break on the topside to convince us that the trend is changing. This morning the USD is trading a little firmer and with little in the way of data red headlines will be the main drivers today. This morning we had CPI out of Europe which came in at 1.3% as expected and the same as the last reading which highlights low inflation will be a main problem going forward for Lagarde and the ECB. Support for the single currency lies at 1.1140/45 for now with a break through there targeting 1.1090/95.

GBPUSD similar to EURUSD enjoyed a move higher on the back teh change in risk sentiment (GBPJPY higher) and also the better than expected UK PMI’s. James Slack (UK PM Spokesman) yesterday reiterated that UK no -deal Brexit persist and will continue to stay the course throughout trade negotiations this year. It is also confirmed that Johnson, von der Leyen and Barnier will be discussing Brexit later this Wednesday in London. We are still of the belief that this uncertainty coupled with the fact that Hedge funds and leveraged investors gave their strongest vote of confidence in the pound in the lead up to the new year, boosting their net long positions to 12,393 contracts, according to CFTC data for the period ending Dec. 31 will weigh on GBP going forward. For today 1.3215/20 will be good resistance and unless we get any positive headlines can’t see it being tested, on the downside immediate support is at 1.3130 followed by 1.3095. GBPEUR is 1.1775.

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The weaker than expected US ISM print last Friday coupled with Iran/US tensions has seen a big move in risk off. The weekend was no different with plenty of verbal trading between the two nations and as a result we expect that risk will continue to trade weaker. Iran says it’s no longer bound by the 2015 nuclear agreement and Iraqi parliament has voted to expel US troops from the country. Trump replied by warning that it will strike Iranian sites if US citizens or sites are struck he also threatened sanctions on Iraq if American troops are ousted.  Safe havens have soared as a result with Gold hitting six year highs and oil over $70 per barrel. USDJPY is trading currently around 107.90 as a result of risk off and the weaker data last Friday how this story pans out is uncertain and this will definitely make the market a jittery place in the short term.During times of geo-political risks the USD tends to remain pretty firm. Looking to the FED we are in an election year and the FED historically does not raise rates during an election year however, only time will tell.

 

EURUSD is a little on the backfoot at the moment as a result of the weaker crosses particularly EURJPY and EURCHF which is a direct consequence of the current risk off scenario. The broad picture still suggests that this set-up will continue as long as the Middle East tensions exist. Today we have already had services PMI’s which have been surprisingly encouraging however, new Chief economist Lane has said that monetary policy is still effective and that “we remain satisfied  that the basic mechanics of monetary policy still operate”. This suggests that the ECB at the moment are happy with how things are working and that rates will remain lower as long as inflation does not pick up. 1.1225/30 remains topside resistance with support at 1.1135/40, we still believe that risk still tilted to the downside for the single currency as low growth and low inflation will continue to dominate.

 

 

GBPUSD again has Brexit woes to contend with and whether we will be able to leave the EU by 31 Jan 2020 as declared by Boris Johnson and if this proves to be successful then we have to deal with the trade deal negotiations so all in all GBP volatility will continue however, we do believe that if both scenarios are satisfied then GBP should see a substantial rally back towards 1.3500, for now we anticipate the wide range to be 1.2500/1.3500. This morning we had services PMI which came in a little stronger and saw cable hit session highs of 1.3147 but we still believe that GBP will remain under pressure as a result of the Middle East tensions and Brexit and Trade deal uncertainties, as such we think 1.3150/1.3180 will remain good resistance for now and are looking for a move back down to 1.3050/1.3060. GBPEUR is 1.1740.

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Happy New Year to all our clients and readers let’s hope 2020 is a cracker. Stocks last year had a stormer with the S&P seeing gains of 28.87%, the same cannot be said about currencies. Trading ranges were very narrow and volatility was extremely low as a result. However, if history is anything to go by then we are due big price swings this year. Back to the present, stocks rallied overnight as the PBoC cut banks RRR to support growth. Year end flows have hit the dollar given the record US equity levels but how long will this continue? For now the trend appears to be in place but we are not too convinced yet. USDJPY has been hit as a result of the USD weakness but appears to have found a base around 108.50, immediate resistance now lies at 109.00 followed by 109.30. Going into the new year the FED will be watching the markets, trade talks, inflation and the upcoming elections to see whether they need to cut more.

EURUSD enjoyed a nice bull run into year end as a result of a weaker USD hitting a high of 1.1240. The fact we have broken 1.1200 is significant but again we are not yet convinced of this move taking into account why and when it occurred, we need to see how this develops. For now we still believe the trend is still tilted to the downside unless we can close above 1.1230 then our focus will shift, till then we still think it should go lower as persisting low inflation and growth should hamper any move higher. Today’s Eurozone PMI has come in lower highlighting that economic recovery is not a given.

GBPUSD similar to EURUSD enjoyed a nice move higher to 1.3290 area but has since come off nearly 100 points. We are now at the mercy of Boris Johnson and how he carries out his Brexit plan for month end. UK PM Johnson pledged in his NY address to complete the UK’s divorce from the EU by end-Jan. UK growth not looking too good which should weigh on GBP too. 1.3165 is immediate support with the recent high of 1.3290 resistance and effectively this will be our range until it’s broken. GBPEUR is 1.1790.