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Daily Report: Sterling Stays Soft after Theresa May Clarifications Print E-mail
Market Overview | Written by | Jan 10 17 02:30 GMT

Daily Report: Sterling Stays Soft after Theresa May Clarifications

Sterling remains the weakest major currency this week as pressured by uncertainties over Brexit. UK prime minister Theresa May blamed the fall in the Pound's exchange rate on media's misinterpretation of what she said yesterday. She clarified that "I am tempted to say that the people who are getting it wrong are those who print things saying I'm talking about a hard Brexit, it is absolutely inevitable it is a hard Brexit. I don't accept the terms soft and hard Brexit." She emphasized that "what we are doing is going to get an ambitious, good and best possible deal for the United Kingdom, in terms of trading with and operating within the European single market." Earlier in the day, May said in a televised interview that Brexit is about "getting the right relationship" and the right relationship is about being "have control of our borders, control of our laws".

German Chancellor Angle Merkel repeated her stance that without accepting EU's "four freedoms", there would be restricted access to the single markets. The four freedoms include movement of goods, people, services and capital over borders. Merkel emphasized that "one can't carry out these negotiations as an exercise in cherry-picking. That would have fatal consequences for the other 27 member states, and we can't allow such consequences." Meanwhile, Merkel also urged European unity beyond Brexit and said urged the member states to have "have joint positions on a range of issues, including trade, climate to domestic security." And without it, "Europe won't be able to develop its strength."

In US, Atlanta Fed president Dennis Lockhart said that "the job of cyclical recovery is largely done". And, Fed is "quite close to achieving its mandated policy objectives of full employment and stable prices." And, the economy is "well positioned for moderate growth and steadily improving conditions". Meanwhile, Boston Fed president Eric Rosengren said that "appropriate monetary policy will need to normalize more quickly than over the past year." And, Rosengren also said that it "seems reasonable if we continue to see real GDP growing faster than the so-called 'potential' rate."

On the data front, UK BRC retail sales monitor rose 1.0% yoy in December. Australia retail sales rose 0.2% mom in November. China CPI rose 2.1% yoy in December, PPI rose 5.5% yoy. Swiss will release unemployment rate in European session. Canada will release housing starts and building permits later in US session.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 140.18; (P) 142.01; (R1) 142.99; More...

GBP/JPY's fall from 148.42 resumed by taking out 142.16 and reaches as low as 140.60 so far. The development confirms short term topping at 148.42 too. Intraday bias is back on the downside for 38.2% retracement of 122.36 to 148.42 at 138.46. As note before, rise from 122.36 is seen as a corrective move. Sustained trading below 138.46 and downside acceleration will indicate that such correction is finished too. And in that case, deeper fall should be seen to 61.8% retracement at 132.31 and below. On the upside, break of 145.38 resistance is needed to confirm completion of the fall from 148.42. Otherwise, near term outlook stays bearish in case of recovery.

In the bigger picture, the down trend from 195.86 top (2015 high) should have made a medium term bottom at 122.36 after hitting 100% projection of 195.86 to 154.70 from 163.87 at 122.71. Price actions from there are expected to develop into a medium term corrective pattern. Upside should be limited by 38.2% retracement of 195.86 to 122.36 at 150.4 for setting the medium term range.

GBP/JPY 4 Hours Chart

GBP/JPY Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
00:01 GBP BRC Retail Sales Monitor Y/Y Dec 1.00% 0.60%
00:30 AUD Retail Sales M/M Nov 0.20% 0.40% 0.50%
01:30 CNY CPI Y/Y Dec 2.10% 2.20% 2.30%
01:30 CNY PPI Y/Y Dec 5.50% 4.60% 3.30%
05:00 JPY Consumer Confidence Dec 41.3 40.9
06:45 CHF Unemployment Rate Dec 3.30% 3.30%
13:15 CAD Housing Starts Dec 191.3k 184.0k
13:30 CAD Building Permits M/M Nov -5.00% 8.70%

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