Dollar Mixed ahead of NFP, Sterling Remains Strongest on Rate Bets

Dollar is trading generally higher in early US session as markets await job data from US. But for the week, Dollar is clearly mixed. In particular, the greenback is under some selling pressure against European majors and Canadian Dollar. EUR/USD, with yesterday’s rebound, is back pressing 1.25 handle. Markets are expecting 180k growth in NFP in January. Other employment related data supports this healthy NFP number. Focus will again be on wage growth as average hourly earnings are expected to rise 0.3% mom.

Atlanta Fed predicts 5.4% annualized growth in Q1

According to Atlanta Fed’s latest forecast, US GBP is set to rise at a stellar 5.4 annualized rate in Q1. If realized, that will be the best quarter since the global financial crisis. However, the accuracy of the forecast model is always under criticism. For example, back in 2017, Atlanta Fed’s tracker predicted 3.4% growth in Q1 but it eventually turned out to be just 1.2% in the final reading. Some economists pointed to the 3.1% prediction of New York Fed’s model as a more realistic, yet optimistic forecast.

UBS predicts May BoE hike, conditional on Brexit deal

Sterling continues to trade as the strongest one for the week as supported by rate hike bets. UBS brought forward their forecasts of next BoE hike to May, subject to Brexit transition deal. In a report published earlier this week, strategist John Wraith noted that the new forecast is "explicitly conditional". Also, he warned that "to be clear, while we are now revising our forecast to incorporate another rate hike we did not previously anticipate, we continue to believe the MPC took a risk with the U.K. economy by raising rates in November, and would be compounding this by doing so again in May."

BoJ offered to buy unlimited JGBs

BoJ conducted a special bond purchase operation today, offering to buy an "unlimited" amount of long-term JGBS. That’s the first time in six months that such special operations were conducted. On the top of that, the purchase of 5- to 10- years JGBs was also raised from PY 410b to JPY 450b. It’s seen by the markets as a pre-emptive move to fend off rise in JGB yields, which was taken higher by global counterparts in recent weeks.

On the data front

New Zealand building permits dropped -0.6% mom in December. Japan monetary base rose 9.7% yoy in January. Australia PPI rose 0.6%, 1.7% yoy in Q4. UK will release construction PMI while Eurozone will release PPI in European session. US will release non-farm payrolls, factor orders and U of Michigan sentiment final.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9232; (P) 0.9287; (R1) 0.9317; More…

USD/CHF’s break of 0.9288 indicates recent decline has resumed. Intraday bias is back on the downside. Current fall from 1.0037 should now extend to next key fibonacci level at 0.9115. On the upside, break of 0.9392 minor resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, the strong break of 0.9420 support suggests that fall from 1.0342 is developing into a medium term down trend. Deeper fall should be seen to 100% projection of 1.0342 to 0.9420 from 1.0037 at 0.9115. Break will target 161.8% projection at 08545. In any case, break of 0.9640 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish even in case of strong rebound.

Economic Indicators Update