Dollar dives broadly today on news that China is considering to diversify its foreign exchange reserves away from Dollar. It’s reported by Bloomberg, without unnamed source, that Chinese officials are recommending the government to slow or even halt purchase of US treasuries. The China’s State Administration of Foreign Exchange has yet provide a response to press query yet. But it’s believed that the lowered attractiveness of US assets, as well as trade tensions between the two countries could be the reasons for the change in strategies.
The report triggered broad based selloff in the greenback, in particular against Yen. USD/JPY’s strong break of 112.02 near term support how suggests that recent fall fro m114.73 is resuming and would target 110 handle and below. The development also mixed up the outlook in EUR/USD and USD/CHF. Both pairs appeared to be reversing recent trends but could now be heading back to 1.2088 and 0.9698 respectively. USD/CAD and AUD/USD are relatively steady in range.
Yen remains the strongest major currency for the week. BoJ’s cut in JGB purchases has heightened speculations that the central bank is preparing to trim its stimulus measures. However, we do not view this as an abrupt shift from BOJ’s monetary stance. Instead, we believe the aim of BOJ is on a steepening of the back end of its yield curve so as to provide support for banks and real money investors. A steeper yield curve would help raise profitability of financial institutions, allowing them to ease lending standards and take risks on their balance sheets. More in BOJ Trimmed JGBs Purchase, Aiming At Yield Curve Steepening Instead Of Policy Normalization
On the data front, US import price rose 0.1% mom in December. Canada building permits dropped -7.7% mom in November. UK industrial production rose 0.4% mom, 2.5% yoy in November. Manufacturing production rose 0.4% mom, 3.5% yoy. Construction output rose 0.4% mom. Visible trade deficit widened to GBP -12.2b. China CPI quickened to 1.8% yoy in December but missed expectation of 1.9% yoy. PPI slowed to 4.9% yoy, above expectation of 4.8% yoy.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.1908; (P) 1.1942 (R1) 1.1968; More….
EUR/USD rebounds strongly after hitting 1.1915. Intraday bias is turned neutral and near term outlook is turned mixed. But after all, decisive break of 1.2091 key resistance is needed to confirm up trend resumption. Otherwise, more corrective trading should be seen with risk of another fall. Below 1.1915 will turn bias to the downside for 38.2% retracement of 1.1553 to 1.2088 at 1.1884. Break will target 61.8% retracement at 1.1757 and below.
In the bigger picture, rise from 1.0339 medium term bottom is still seen as a corrective move for the moment. Therefore, in case of another rally, we’d be expect 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 to limit upside and bring reversal. That is also close to 61.8% projection of 1.0569 to 1.2091 from 1.1553 at 1.2494.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 01:30 | CNY | PPI Y/Y Dec | 4.90% | 4.80% | 5.80% | |
| 01:30 | CNY | CPI Y/Y Dec | 1.80% | 1.90% | 1.70% | |
| 09:30 | GBP | Industrial Production M/M Nov | 0.40% | 0.40% | 0.00% | 0.20% |
| 09:30 | GBP | Industrial Production Y/Y Nov | 2.50% | 1.80% | 3.60% | 4.30% |
| 09:30 | GBP | Manufacturing Production M/M Nov | 0.40% | 0.30% | 0.10% | 0.30% |
| 09:30 | GBP | Manufacturing Production Y/Y Nov | 3.50% | 2.80% | 3.90% | 4.70% |
| 09:30 | GBP | Construction Output M/M Nov | 0.40% | 0.70% | -1.70% | -1.10% |
| 09:30 | GBP | Visible Trade Balance (GBP) Nov | -12.2B | -11.0B | -10.8B | |
| 13:00 | GBP | NIESR GDP Estimate Dec | 0.60% | 0.50% | 0.50% | 0.60% |
| 13:30 | CAD | Building Permits M/M Nov | -7.70% | -0.70% | 3.50% | 4.40% |
| 13:30 | USD | Import Price Index M/M Dec | 0.10% | 0.40% | 0.70% | 0.80% |
| 15:00 | USD | Wholesale Inventories M/M Nov F | 0.70% | 0.70% | ||
| 15:30 | USD | Crude Oil Inventories | -7.4M |
