UK CPI rose to 0.6% yoy in December, up from 0.3% yoy, above expectation of 0.5% yoy. CPI core rose to 1.4% yoy, up from 1.1% yoy, above expectation of 1.3% yoy. RPI also rose to 1.2% yoy, up from 0.9% yoy, above expectation of 1.1% yoy.
EUR/CAD in recovery ahead of BoC, downside breakout still expected
BoC rate decision is a major focus today. It’s widely expected to keep overnight rate unchanged at 0.25%. The size of the asset purchase program will also be held at CAD 4B per week. Focuses will be on Governor Tiff Macklem’s guidance on the chance of a “micro rate cut” ahead. That is, lowering interest rate to a new effective lower bound, while keeping it positive. Also, BoC will release new economic projections.
Here some some previews:
- BOC Preview – All Eyes on Likelihood of Micro Rate Cut
- Bank of Canada: Opening the Door for a Rate Cut
- Forward Guidance: BoC to Flag Medium-Term Optimism, Near‑Term Concern
Canadian Dollar is outperformed by European majors this week so far. EUR/CAD’s decline halted ahead of 1.5313 support and recovered. Though, the structure suggests that it’s merely a corrective rise, which is in line with our bearish view. We’d expect the recovery to be limited by 1.5534 resistance to bring decline resumption sooner or later. Firm break of 1.5313 will resume whole fall from 1.5978 to 100% projection of 1.5978 to 1.5313 from 1.5783 at 1.5118.
Australia Westpac consumer sentiment dropped -4.5%, still healthy
Australia Westpac Consumer Sentiment dropped -4.5% to 107 in January, down from 112.0. The fall came in where there was domestic border closures, emergence of coronavirus clusters in some states and the sharp upswing in infections globally. Overall, “it still points to healthy consumer sentiment”.
Regarding RBA’s next meeting on February 2, Westpac said the board “seems almost certain to maintain its current policy stance”. The central bank decided in November the intention to purchase AUD 100B in government and semi-government bonds. Markets would be interested in any guidance in respect to the program, which is set to end at the end of April. Westpac expects a second program of AUD 100B afterwards.
BoE Haldane: Recovery probably at rate of knots from Q2
BoE Chief Economist Andy Haldane said current tougher lockdown restrictions are threatening to bring the UK economy into a double-dip recession. That next slump could be “shorter, sharper shock” than the last one in 2007. Though, unemployment could be capped as long as Chancellor of the Exchequer Rishi Sunak maintains the furlough wage subsidies until the economy has recovered to with 5-10% of pre-pandemic level. Current tighter
Also, “if we get that recovery that I expect to start coming on stream, probably at the rate of knots from the second quarter, that will hopefully then eat away and improve the prospects of reemploying those million people who have lost their jobs”, Haldane added. “Ultimately there’s a timing question — timing the end of the furlough scheme in such a way that the economy is recovered sufficiently to prevent any losses of jobs.”
Yellen: The world has changed, defeating the pandemic is the most important thing
US stocks closed higher overnight after Treasury secretary nominee Janet Yellen’s Senate confirmation hearing. “The world has changed,” she said. “In a very low interest-rate environment like we’re in, what we’re seeing is that even though the amount of debt relative to the economy has gone up, the interest burden hasn’t.”
She gave a strong node to President-elect Joe Biden’s fiscal package, to be unveiled next month. “The most important thing we can do is to defeat the pandemic, to provide relief to American people and to make long-term investments that make the economy grow and benefit future generations,” said Yellen.
Yellen described China as the most important strategic competitor with its “abusive, unfair and illegal practices.” She also said China is “guilty of horrendous human rights abuses” in response to a question on whether China had committed “genocide” in treating of Uyghurs.
In a last-minute proclamation, outgoing Secretary of State Mike Pompeo determined China “has committed genocide against the predominantly Muslim Uyghurs and other ethnic and religious minority groups in Xinjiang”, and “this genocide is ongoing”. Biden’s nominee for Secretary of State Antony Blinken also said in his confirmation hearing, “The forcing of men, women and children into concentration camps; trying to, in effect, re-educate them to be adherents to the ideology of the Chinese Communist Party, all of that speaks to an effort to commit genocide.”
US Janet Yellen’s Senate confirmation hearing live stream
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AUD outperforming NZD and CAD as risk-on mode back
As markets are back in risk-on mode, Australian Dollar is outperforming other commodity currencies for now. In particular, AUD/NZD extends the rally from 1.0418 today and breaks 61.8% retracement of 1.1043 to 1.0418 at 1.0804. Near term outlook will now stay bullish as long as 1.0756 support holds. Current rise would target a test on 1.1043 high.
AUD/CAD’s rally stalled after hitting 0.9898. Yet, subsequent consolidation is contained by 0.9772 support so far, keeping near term outlook bullish. Break of 0.9898 will resume the rise from 0.8066 to 61.8% projection of 0.8066 to 0.9696 from 0.9247 at 1.0254. Though, break of 0.9772 will indicate short term topping and bring deeper pull back. Canadian Dollar would outperform in this case.
German ZEW rose to 61.8, despite uncertainty about further course of lockdown
German ZEW economic sentiment rose to 61.8 in January, up from 55.0, above expectation of 60.0. Current situation index edged up to -66.4, from -66.5, above expectation of -68.0. Eurozone economic sentiment rose to 58.3, up from 54.4, above expectation of 45.5. Eurozone current situation dropped -3.2 pts to -78.9.
“Despite the uncertainty about the further course of the lockdown, the economic outlook for the German economy has improved slightly. The results of the ZEW Financial Market Survey in January show that export expectations in particular have risen significantly,” comments ZEW President Professor Achim Wambach.
CHF/JPY rebounds from 55 D EMA, Yen to underperform further
CHF/JPY rebounds strongly today, following broad based selloff in Yen, and to a lesser extend the Franc. Overall development suggests the Yen could underpeform the Franc, for the near term at least.
Strong support seen in 55 day EMA suggests underlying near term bullishness. Also, the price actions from 117.73 so far are clearly a three wave correction pattern, affirming the bullish view too. The focus would likely be back on 117.56/86 resistance zone soon. Decisive break there should confirm medium term up trend resumption.
Nevertheless, real test would be on 118.59 resistance. We’ll await the development to unfold and monitor the reaction there.
Prospect of stronger rebound in EUR/CHF, EUR/JPY and EUR/USD today
Following strong risk on-markets in Asia, Euro is trading generally higher against Dollar, Yen and Swiss Franc. Considering that respectively pairs have just drew support from near term support levels, there is prospect of a stronger rebound in the common currency today.
EUR/CHF recovered after touching 1.0737 near term support level. 4 hour MACD’s cross above signal line indicates stabilization. Focus is back on 1.0787 support turned resistance. Firm break there will argue that the three wave corrective fall from 1.0890 has completed. That would also retain near term bullishness for another up-move through 1.0890.
EUR/JPY also recovered after breaching 38.2% retracement of 121.63 to 127.48 at 125.24 briefly. Focus is back on 125.91 minor resistance. Firm break there will argue that the pull back from 127.48 has completed earlier than expected. That would bring stronger rally for a retest on 127.48 high.
Recovery in EUR/USD is relatively weaker comparing to the above two pairs. Though, 4 hour MACD’s cross above signal line does suggest stabilization, after hitting 1.2058 cluster support (38.2% retracement of 1.1602 to 1.2348 at 1.2063). Break of 1.2131 would turn bias to the upside for stronger rebound back towards 1.2348 high.
New Zealand NZIER business sentiment further improved in Q4
The latest NZIER Quarterly Survey of Business Opinion showed a net 15% of business expect a deterioration in general economic conditions over the coming months. That’s notable improvement from Q3’s 38% and the worst reading of 68% during the most pessimistic period in March 2020.
On companies’s own activity, a net 1% reported reduced demand. NZIER said This measure suggests a rebound in annual GDP growth to around 2 percent at the end of 2020 from the lockdown lows in mid-2020.
Asian stocks rally on US Yellen, HSI up more than 3%
Asian stock, except China, surge broadly today as US Treasury nominee, former Fed chair, Janet Yellen is report to adopt an “act big” stance on fiscal stimulus. Commodity currencies are trading broadly higher, as led by Australian Dollar. Yen, Dollar and Swiss Franc are back under pressure.
Yellen will appear before the Senate Finance committee today for her confirmation hearing. According to the prepared remarks obtained by the Financial Times, Yellen will say, “neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden.”
“But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time,” She’ll add.
At the time of writing, Hong Kong HSI is up 883.4 pts or 3.06%. The strong break of the medium term channel resistance should confirm upside acceleration. Next target is 161.8% projection of 21139.26 to 26782.61 from 23124.25 at 32255.19. Current development also suggest that rise from 21139.26 is likely the start of another long term up trend, that would likely take out 33484.7 record high in the medium term.
Bundebanks: Restrictions won’t set the economy recovery too far back
German’s Bundesbank said in the monthly report that data up to November suggested there was “no significant setback” in the economy in Q4 despite pandemic restrictions. Business confidence also “brightened” strongly in December. The “encouraging signals
give reason to hope that the restrictions that were extended and tightened at the beginning of the new year will not set the economic recovery too far back ”
Though, it also warned, “if the infection rate does not subside significantly and the current restrictions on economic activity last longer or are further tightened, a noticeable setback could nonetheless occur.”
CAD/JPY completed terminal triangle, heading back to 80 first
CAD/JPY’s break of 81.22 support suggests that a short term top was formed at 82.16. More importantly, the cross could have also completed a terminal triangle, in five wave started from 77.91. Deeper fall would be seen back to 80.12 support first. Firm break there would indicate near term bearish reversal. That is, whole rebound form 73.80 has completed, on bearish divergence condition in daily MACD.
More importantly, if that happens, that would mark rejection by long term falling channel. Larger down trend form 91.62 might then be resuming for another low below 73.80 in the medium term.
Yellen: US doesn’t seek a weaker currency to gain competitive advantage
US Treasury Secretary nominee, former Fed chair, Janet Yellen was quoted on Sunday affirming the stance of not seeking a weaker exchange rate.
According to a WSJ report, Yellen will say in a Senate confirmation hearing, “the value of the U.S. dollar and other currencies should be determined by markets. Markets adjust to reflect variations in economic performance and generally facilitate adjustments in the global economy.”
“The United States doesn’t seek a weaker currency to gain competitive advantage,” she would add. “We should oppose attempts by other countries to do so.”
Bitcoin recovery capped at 40k, started third leg of consolidation pattern
Current development, with break of a near term channel, suggests that bitcoin’s recovery from 30635 has completed at 40000 already. Consolidation pattern from 41964 high should have started the third leg. Deeper decline is now in favor back to 30635.
For now, we’d expect strong support around 30k psychological level to contain downside. In case of a deeper than expected correction, bitcoin could dip into support zone between 100% projection of 41964 to 30635 from 40000 at 28671 and 38.2% retracement of 17629 to 41964 at 26924, before making a bottom.
Gold dipped in Asia, but holds above 1800 handle
Gold breached 1817.05 support, and dipped to 1810.07 earlier today but quickly recovered. Bias stays neutral for some more consolidations first. In case of another recovery, we’d expect upside to be limited by 1863.51 resistance to bring fall resumption.
Current decline from 1959.16 is seen as the third leg of the pattern from 2075.18. Decisive break of 1817.05 should target 1764.31 support and below.
China GDP grew 6.5% in Q4, but Dec data mixed
China’s GDP grew 6.5% yoy in Q4, accelerated from prior quarter’s 4.9% yoy, beat expectation of 6.1% yoy. Overall, GDP grew 2.3% in 2020, making it the only major economy that avoided a contraction, due to the coronavirus pandemic that started with outbreak in Wuhan.
December data were mixed. Industrial production grew 7.3% yoy, accelerated from 7.0% yoy, beat expectation of 6.9% yoy. Fixed asset investment grew 2.9% ytd yoy, below expectation of 3.2% ytd yoy. Retail sales grew only 4.6% yoy, slowed from 5.0% yoy, missed expectation of 5.50% yoy.
Hong Kong HSI trades mildly higher today in response to the releases. HSI is now pressing an important resistance level, with 100% projection of 21139.26 to 26782.61 from 23124.25 at 28767.60, as well as medium term channel. Decisive break of the level will confirm upside acceleration. More importantly, rise from 21139.26 should finally b e seen as developing into a long term up trend.
UK NIESR projects -3.4% GDP contraction in Q1
NIESR estimated a 0.9% growth in UK GDP in Q4 of 2020, implying a total contraction of -9.8% for the whole year. With tight restrictions and some post-Brexit adjustment, Q1 is forecast to have negative growth on -3.4%. It added, “the short-term negative economic impact of lockdowns should be outweighed by the potential positive long-term health and economic impacts from controlling the virus and restoring confidence.”
“Today’s ONS data confirm a significant slowdown in the last quarter of 2020, despite November’s lockdown in England clearly having a far smaller effect than the first. Surveys and high frequency indicators suggest that recovery from the Covid-19 shock was weak even before a third lockdown become necessary in January. Temporary and permanent adjustments post-Brexit transition period are likely to also weigh on growth in the early part of 2021, but the vaccine roll-out provides some encouragement for consumption and investment in the second half of 2021 and beyond. The economic impact of the lockdowns is clearly negative in the short-term but will be significantly positive in the medium term if successful in controlling the virus and restoring confidence.” Rory Macqueen Principal Economist – Macroeconomic Modelling and Forecasting
Bitcoin eyes 34500 support as recovery faltered
We’re holding on to the view that bitcoin’s price actions from 40000 represents the third leg of the corrective pattern from 41964.0. This is affirmed by the fact that corrective recovery from 34500 to 37936 was limit by the channel support turned resistance. Focus is now back on 34500 support. Break there will further confirm our view and target 30635 support next. Still, even in this case, we’re not expecting and firm break of 30k handle. Meanwhile, break of 37936 resistance will dampen this view and bring strong rebound, probably through 40000 to retest 41964 high.