According to a tweet of the spokesman for the German EU Presidency Sebastian Fischer, EU has approved the provisional application of the EU-UK Trade and Cooperation Agreement as of January 1, 2021. The next step is the final adoption by written procedure tomorrow.
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AUD/JPYs breach of 78.82 resistance suggests resumption of rise from 73.13. But upside momentum has been weak so far, and the cross couldn’t sustain above 78.82 yet. Also, we’d note again that AUD/JPY is facing a key resistance zone, between 55 month EMA and decade long falling channel. Risk of topping at around current level is high.
Nevertheless, break of 77.49 support is needed to signal short term topping first. Otherwise, further rally will remain in favor. Sustained break of the channel resistance will be a strong sign of long term bullish reversal. That would pave the way to 90.29 resistance in the medium term.
Gold opens the week sharply higher today as it drew strong support from 4 hour 55 EMA. It’s now trying to reclaim 1900 handle. More importantly, focus in on 1906.74 resistance. Firm break there will resume whole rebound form 1764.31. We’re seeing that corrective pattern from 2075.18 has completed with three waves down to 1764.31. Break of 1965.50 resistance should confirm our bullish view and target a test on this high. In any case, near term outlook will say cautiously bullish as long as 1819.05 support holds.
In the Summary of Opinions at BoJ’s December 17-18 meeting, It’s noted that the economy is “not judged to have fallen into a deflationary situation again”. But year-on-year rate of core inflation has already turned negative due to “temporary factors”, and it’s likely to be negative for the time being.
However, there is a “risk” of the economy falling into deflation as “medium- to long- term inflation expectations have weakened somewhat”. Hence, “risks of sudden changes in financial markets, including foreign exchange rates, also continue to warrant attention.”
It’s “highly likely” to take more time to achieve the price target. Given that monetary easing will be “further prolonged” it’s important to to conduct an assessment for further effective and sutainable monetary easing.
One member warned, “if the economy falls into deflation again, positive economic developments, such as an increase in employment, will be hampered, and the opportunity for the economy to leap forward could be lost”
“The Bank should conduct the assessment with determination to never allow the economy to return to deflation.” the member added.
GBP/CAD is bounded inside both medium and long term sideway pattern after last week’s rebound. For the near term, firm break of 1.7674 resistance is needed to be the first sign of underlying bullishness. Retest of 1.8052 high could be seen next in this case. However, break of 1.6768 would indicate that whole rise from 1.5875 has completed at 1.8052. Deeper fall could then be seen through 1.6542 support to confirm this bearish case.
In the bigger picture, it’s staying well inside long term patter that started at 1.5746 (2016 low). With this in mind, in case of the a near term upside breakout through 1.8052, upside could be capped by 1.8415 resistance, at least for first attempt. Meanwhile, any decline should be contained by 1.5875 support too.
Sterling is so far having very little reaction to the last minute trade deal between the UK and EU. Overall outlook is mixed for now. Details were published in a 1246-page document titled “Draft EU-UK Trade and Cooperation Agreement“. European Parliament is expected to meet today to discuss the agreement, while the UK Parliament will vote on December 30.
GBP/CHF staged a strong rebound last week but upside is capped below 1.2203/59 resistance zone. Range trading could still continue between 1.1598/2259 for the near term. Resumption of rebound from 1.1102 is now mildly in favor. Firm break of 1.2259 would pave the way back to 1.3301 medium term structural resistance.
However, break of 1.1598 support will confirm rejection by falling 55 week EMA, which should then keep the long term down trend intact for another low through 1.1102 at a later stage.
Canada GDP rose 0.4% mom in October, above expectation of 0.3% mom. That’s the sixth consecutive month of increase. Overall, total economic activity was about -4% below February’s pre-pandemic level. Goods-producing industries rose 0.1% mom. Services-producing industries rose 0.5%. Activity rose in 16 of 10 industrial sectors.
US personal income dropped -1.1% mom to USD 221.8B in November, worse than expectation of -0.3%. Spending dropped -0.4%, worse than expectation of -0.2% mom. Headline PCE index slowed to 1.1% yoy, below expectation of 1.2% yoy. Core PCE index was unchanged at 1.4% yoy, below expectation of 1.5% yoy.
US durable goods orders rose 0.9% mom to USD 244.2B in November, above expectation of 0.6%. That’s also the seven consecutive months of increase. Ex-transport orders rose 0.4%, below expectation of 0.5%. Ex-defense orders rose 0.7%. Transportation equipment rose 1.9%.
US initial jobless claims dropped -89k to 803k in the week ending December 19, below expectation of 900k. Four-week moving average of initial claims rose 4k to 818.25k.
Continuing claims dropped -170k to 5337 in the week ending December 12. Four-week moving average of continuing claims dropped -118k to 5538k.
The Reuters/INSEAD Asian Business Sentiment Index rose to 62 in Q4, up from 53 in Q3. That’s the best reading since Q4 2019, signalling more positive outlook.
“There’s a sense of optimism going forward,” said Antonio Fatas, Singapore-based economics professor at global business school INSEAD. “Things are getting better but they are getting better with still a dose of uncertainty. The effect of the crisis is very different across sectors,” he added, noting the weakness in the transport sector due to curbs on global travel.
In the minutes of October 28-29 BoJ meeting, one member said the bank should “avoid bringing a premature end” to the pandemic policy responses, as the impact “might be prolonged”.
Another member warned, “given that monetary easing was expected to be prolonged, the Bank should further look for ways to enhance sustainability of the policy measure so that it would not face difficulty in conducting such purchases when a lowering of risk premia of asset prices was absolutely necessary.”
Also, one noted “attention should be paid to the possibility that the more prolonged the crisis response, the more the structural reforms toward sustainable growth would be delayed”.
Brexit trade negotiations are still stuck at fishing, after EU rejected UK’s last offer. It’s believed that progress were made and both sides had political willing. Many issues were close to resolved, except that fisheries remained difficult to bridge.
Chief negotiator Michel Barnier said, as he went into a meeting with EU ambassadors: “We are really in the crucial moment. We are giving it the final push. In 10 days the UK will leave the single market and we continue to work in total transparency with the member states right now and with the parliament.”
It’s reported that he told the ambassadors, there was “political willing on both sides to get this over the line”, adding that “some things now have to go higher up”.
US Conference Board Consumer Confidence Index dropped to 88.6 in December, down from 92.9, missed expectation of 97.5. Present Situation Index dropped sharply from 105.9 to 90.3. However, Expectations Index rose from 84.3 to 87.5.
Lynn Franco, Senior Director of Economic Indicators at The Conference Board: “Consumers’ assessment of current conditions deteriorated sharply in December, as the resurgence of COVID-19 remains a drag on confidence… Overall, it appears that growth has weakened further in Q4, and consumers do not foresee the economy gaining any significant momentum in early 2021.”
According to the third estimate, US GDP grew at an annualized rate of 33.4% in Q3, revised up from 33.1%. The upward revision primarily reflected larger increases in personal consumption expenditures (PCE) and nonresidential fixed investment.
BoE Chief Economist Andy Haldane said in a Guardian interview, the central bank would continue to provide monetary policy support to the economy, as “the risks are still with us and the risks are still real.” The right time “to signal and to execute” the reduction of insurance provided by policies is “when you actually see the risks being reduced for people in terms of their jobs and for businesses in terms of their viability.”
“We are still in a hole and the hole is still deep. We need to keep climbing out that hole through policy measures and the vaccine. But once we have climbed out – and we will – we mustn’t forget about long-term structural issues: what will give us good work at good pay,” he added.
UK Q3 GDP was estimated to have increased by a record 16.0% qoq in Q3, revised up from first estimate of 15.5%. Over the year, GDP dropped -8.6% yoy. The level of GDP was still -8.6% below that at the end of 2019.
Germany Gfk consumer climate for January dropped slightly to -7.3, down from -6.8. In December, economic expectations rose to 4.4, up from -0.2. Income expectations dropped to 3.6, down from 4.6. Propensity to buy rose to 36.6, up from 30.5.
Rolf Bürkl, GfK Consumer Expert said: “There is reason to fear that the consumer climate is about to enter a very difficult phase in the coming weeks. Any relaxation or recovery can certainly only come when the infection rates have dropped so far that the strict restrictions can be loosened once more.”
Australian retail sales rose 7% mom in November to AUD 2072B, well above expectation of 2.5% mom. In seasonally adjusted terms, sales turnover rose 13.2% yoy.
Ben James, Director of Quarterly Economy Wide Surveys, said: “Victoria saw a large rise, up 21 per cent, as retail stores experienced a full month of trade following the easing of coronavirus restrictions in that state. Excluding Victoria, retail sales rose 2.7 per cent.
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UK Johnson welcomes the UK/EU Agreement as new starting point
UK Prime Minister Boris Johnson spoke to European Council Charles Michel today. He tweeted afterwards, “I welcomed the importance of the UK/EU Agreement as a new starting point for our relationship, between sovereign equals.”
“We looked forward to the formal ratification of the agreement and to working together on shared priorities, such as tackling climate change,” he added.
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