Yen and Dollar are pressured for the whole day, and remain so in early US session. Risk appetite in Asian markets was boosted by optimism over US-China trade talks. There is hope that the meetings in Washington this week will eventually yield a memorandum of understanding of some sort, as the foundation to the trade agreement. Nevertheless, we point out that such optimism is not shared among European investors, as major European indices are just mixed.

Staying in the currency markets, Euro and Sterling are the strongest ones for no apparent reason. Both will face some tests later this week, including UK job data, German ZEW and Ifo, ECB accounts and Eurozone PMIs. Outlook for German economy is not too upbeat and Bundesbank expect subdued growth at least in first half. The risks of US auto tariffs remain. Meanwhile, there is no way out for Brexit impasse yet.

Technically, both gold resumed recent rally by taking out 1326.25 resistance. WTI crude oil also rises further to as high as 56.68 so far. China Shanghai SSE completed a double bottom reversal pattern. In the currency markets, EUR/USD and GBP/USD are still limited below 1.1341 and 1.2958 resistance levels. USD/CHF is held well above 0.9988 support. USD/JPY is kept well above 110.00 support. USD/CAD is holding above 1.3196 support. There is no clear bearishness in Dollar. EUR/JPY and GBP/JPY are held in rage below 125.95 and 144.84 respectively, as consolidation extends. EUR/GBP is also kept above 0.8728 minor support. Overall markets are rather consolidative.

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In other markets, FTSE is currently up 0.05%, DAX is down -0.06%, CAC Is up 0.32%. German 10-year yield is up 0.0083 at 0.114. Earlier in Asia, Nikkei rose 1.82%. Hong Kong HSI rose 1.60%.China Shanghai SSE rose 2.68%. Singapore Strait Times rose 0.81%. Japan 10-year JGB yield rose 0.002 to -0.019. US market is on President’s day holiday today.

UK Lidington: Useful discussions with Brussels, but very difficult to reopen negotiations

UK Minister for the Cabinet Office David Lidington said today that the government is having useful discussion with Brussels. However, it’s still very difficult to reopen withdrawal agreement negotiation.

He told BBC radio that “My experience last week… was that they were a lot more than courtesy calls. It was a very useful discussion about the politics, both within the United Kingdom and within the EU27, and a scoping out of what was possible.” However, Lidington also noted that “Reopening the withdrawal agreement… will be very difficult.”

Brexit Minister Steve Barclay will meet EU’s chief Brexit negotiator today. Prime Minister Theresa May’s spokesman said “the PM has been seeking to reopen the withdrawal agreement and that remains our position”. On the other hand, EU reiterated that they won’t reopen negotiation.

EU launched outreach campaign on no-deal Brexit customs preparedness

European Commission launched an outreach campaign today on “no-deal” Brexit customs preparedness. The campaign aims to ” raise awareness amongst the EU’s business community, especially SME” to prepare for a “no-deal” scenario while continuing to trade with the UK after March 30. EU urged that businesses should “assess whether they have the necessary technical and human capacity to deal with customs procedures and rules”, “consider obtaining various customs authorisations and registrations in order to facilitate their trading activity” and, “Get in touch with their national customs authority to see what other steps can be taken to prepare.”

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “With the risk of a no-deal Brexit increasing as we get closer to March 29, the European Commission and national customs authorities are working hard to be ready to introduce checks and controls on goods flowing between the EU and the UK. This is key to protecting our consumers and our internal market. A lot depends on the ability of businesses trading with the UK to get up to speed with the customs rules that will apply on day one in case of no deal. There is no time to lose and we are here to help with the information campaign.”

Bundesbank: German economy to remain subdued at least in H1

In its monthly report, Bundesbank warned that German economy will continue to struggle in the first half of 2019. The economy is unlikely to regain momentum with Weak orders in manufacturing, gloomy sentiment indicators and sluggish investments. It said that “all these suggest that the underlying pace of the economy should remain subdued at least in the first half of the year.”

Though, it also noted that “there are no signs that the slowdown is becoming an outright downturn.” In particular, the drag from auto exports is starting to normalize. Meanwhile, labor market remains healthy with private consumption picking up.

Auto tariff report submitted, 90 days for Trump to act

The US Commerce Department met the Sunday deadline and submitted its investigation report on imported cars and auto parts to the White House. The Section 232 is about national security threats from those auto imports. A Commerce Department spokesperson said it would not disclose any details of the report. Trump has 90 days to make a decision on whether to act up the recommendations, which could include some tariffs on fully assembled vehicles or on technologies and components related to electric, automated, connected and shared vehicles.

German Chancellor Angela Merkel said in the Munich Security Conference that “we are proud of our cars and so we should be.” She added that “if that is viewed as a security threat to the United States, then we are shocked”. German car lobby VDA said the countries car industry has created more than 113k jobs in the US in recent years, with around 300 factories. German car companies were the largest car exporters from the US. And VDA said “all this strengthens the USA and is not a security problem.”

Canada Freeland: Time to remove Section 232 tariffs with USMCA concluded

Canadian Foreign Minister Chrystia Freeland attended the Munich Security Conference over the weekend. There she also met US House Speaker Navy Pelosi and urged to remove the steel and aluminum tariffs. Freeland noted that Canada is now in the process of domestic ratification of the so called USMAC, US-Mexico-Canada agreement on trade. And Canada’s position remains strongly opposed to the section 232 steel tariffs. She also told reporters that “the Canada position is now that we have concluded (USMCA) that is all the more reason why the tariffs must be lifted.”

Separately at the conference, Freeland also urged to reinforce “rules-based international order”. And she proposed to bring together specific coalitions around specific issues.”

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2817; (P) 1.2857; (R1) 1.2930; More….

GBP/USD’s recovery from 1.2773 extends today but upside is kept below 1.2958 resistance so far. Intraday bias remains neutral and more consolidation might be seen. Further decline is in favor with 1.2958 intact. On the downside, break of 1.2773 will resume the fall from 1.3217 to retest 1.2391 low. On the upside, however, break of 1.2958 resistance will turn bias to the upside for retesting 1.3217 instead.

In the bigger picture, the rejection by 1.3174 key resistance revived the original view on GBP/USD. That is, decline from 1.4376 is possibly resuming long term down trend from 2.1161 (2007 high). Firm break of 1.2391 will solidify this bearish case and target 1.1946 (2016 low). However, decisive break of 1.3174 will invalidate this bearish case again and turn outlook bullish.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Machine Orders M/M Dec -0.10% -1.10% 0.00%
00:01 GBP Rightmove House Prices M/M Feb 0.70% 0.40%

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