Yen and Swiss Franc turn mildly softer today as risk aversions receded. Asian stocks recover generally even though upside is limited. Traders remain cautious on coronavirus outbreak in China, which has already spread to the US. Sterling, Euro and Dollar are currently the stronger ones. Canadian Dollar is mixed, awaiting BoC rate decision and Canadian CPI.
Technically, AUD/USD seems to be building up downside momentum after taking out 0.6849 support. Corrective rebound from 0.6670 should have completed with three waves up to 0.7031. Deeper fall should be seen to 0.6754 support for confirmation. EUR/USD’s recovery was weak overnight. Focus is immediately back on 1.1066/76 support zone. Firm break there will add to the case that corrective rebound from 1.0879 has completed with three waves up to 1.1239. Deeper fall should then be seen to 1.0981 support for confirmation.
In Asia, Nikkei closed up 0.70%. Hong Kong HSI is up 1.22%. China Shanghai SSE closed up 0.28%. Singapore Strait Times is up 0.25%. Japan 10-year JGB yield is up 0.0032 at -0.003. Overnight, DOW dropped -0.52%. S&P 500 dropped -0.27%. NASDAQ dropped -0.19%. 10-year yield dropped -0.067 to 1.769.
S&P 500 retreated on China’s Coroanvirus, but up trend not threatened
US stocks closed broadly lower overnight on the arrival of China’s coronavirus. The Centers for Disease Control and Prevention confirmed the first case in the US. In China, a physician physician who investigated the outbreak said he has himself been infected. China’s Center for Disease Control and Prevention also warned that the new virus which killed nine people is adapting and mutating.
S&P 500 closed down -0.27% at 3320.79. Despite the pull back, there is no threat to the uptrend for now. As long as 3214.63 support holds, current up long term up trend is expected to extend to 100% projection of 1810.10 to 2940.91 from 2346. 58 at 3477.39 next.
Canada Trudeau: Passing the new NAFTA is our priority
Canadian Prime Minister Justin Trudeau said he will unveil the legislation on January 29 to ratify the USMCA. He noted, “we are going to make sure we move forward in the right way and that means ratifying this new NAFTA as quickly as possible”. “Passing the new NAFTA is our priority,” said Trudeau. “There are too many businesses relying on access to the U.S. market … it’s extremely important that we move forward with ratification and it’s our intention to move forward with this.”
However, the move by Trudeau’s minority Liberal government could be slowed down by main opposition. The Conservative Party spokesman Randy Hoback, “we definitely want to give it the proper due diligence to shine a light on some of the unique.” “I don’t think anybody has any intention of dragging anything out. We just want to make sure we do our job … there are some things in this deal that I think the business community isn’t aware of that we need to shine a light on.”
BoC to stand pat as risks largely receded
BoC rate decision is a major focus today, together with Canadian CPI. BoC is widely expected to keep policy rate unchanged at 1.75%. The central bank appeared to have downplayed some downside surprises in recent economic data. Risks of receded with US-China trade deal phase one and ratification of USMCA in US Congress. The test for resilience of the Canadian economy could be over for now, and need of insurance rate cut largely vanished. The next move would be very much data dependent.
Suggested previews on BoC:
- USD/CAD Poised To Breakout With BOC On Tap
- Bank Of Canada To Hold Rates Steady But Loonie Could Drift Lower
- BOC to Leave Rate Unchanged at 1.75%. Disappointing Data Likely Due to Temporary Factors
- Forward Guidance: Trade Deals Just One Factor in BoC’s Outlook
On the data front
Australia Westpac consumer confidence dropped -1.8% in January/ US will release public sector net borrowing and CBI industrial order expectations. US will release house price index and existing home sales. But major focus will be on Canada CPI and BoC rate decision. Canadian wholesales sales and new housing price index will also be featured.
USD/CAD Daily Outlook
Daily Pivots: (S1) 1.3051; (P) 1.3065; (R1) 1.3086; More….
Intraday bias in USD/CAD remains neutral as range trading continues. On the upside, firm break of 1.3104 resistance will confirm short term bottoming at 1.2951. Further rise should then be seen to 55 day EMA (now at 1.3126). Sustained trading above there will target 1.3327 resistance. On the downside, below 1.3029 minor support will turn bias to the downside for 1.2951 low. Break there will resume larger decline to 100% projection of 1.3564 to 1.3016 from 1.3327 at 1.2779 next.
In the bigger picture, rise from 1.2061 (2017 low) could have completed at 1.3664, after failing 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685. However, structure of price actions from 1.3664 argues that it’s probably just a corrective move. Hence, while further fall is expected, downside should be contained by 61.8% retracement of 1.2061 to 1.364 at 1.2673. Nevertheless, sustained break of 1.2673 will put focus on 1.2061 low.
Economic Indicators Update
|23:30||AUD||Westpac Consumer Confidence Jan||-1.80%||-1.90%|
|9:30||GBP||Public Sector Net Borrowing (GBP) Dec||4.5B||4.9B|
|11:00||GBP||CBI Industrial Order Expectations Jan||-25||-28|
|13:30||CAD||Wholesale Sales M/M Nov||-0.30%||-1.10%|
|13:30||CAD||New Housing Price Index M/M Dec||-0.10%|
|13:30||CAD||CPI M/M Dec||0.20%||-0.10%|
|13:30||CAD||CPI Y/Y Dec||2.10%||2.20%|
|13:30||CAD||CPI Common Y/Y Dec||1.90%|
|13:30||CAD||CPI Median Y/Y Dec||2.40%|
|13:30||CAD||CPI Trimmed Y/Y Dec||2.20%|
|14:00||USD||Housing Price Index M/M Nov||0.20%||0.20%|
|15:00||USD||Existing Home Sales M/M Dec||5.42M||5.35M|
|15:00||CAD||BoC Interest Rate Decision||1.75%||1.75%|