Sample Category Title

• USD – Dollar rally continues as optimism grows on trade front
• Shutdown- Likely to go down to the wire again
• Gold – Sinks on strong dollar and upbeat trade talks
• Oil – Supply worries are building, WTI $50 level at risk
• Apple – Huawei continues to take market share in China

USD

The dollar continues to ascend as global bond yields rise and optimism grows that we will see positive steps this week with the China and US trade negotiations, potentially leading up to a meeting in mid-March with Trump and Xi.  With the exception of Wednesday’s US inflation reading, economic data is fairly light and the focus will remain on political developments with trade and government funding.

Shutdown

Over the weekend, talks fell apart between Democrats and Republicans on border security, potentially signaling we could see another shutdown if no agreement passed by the February 15^th deadline.  The roadblock to a deal remains the level of funding for border barriers, funding increases for facilities and personnel.  The President could be forced to accept funding that comes well below his $5.7 billion demand in order to avoid further political damage for another government shutdown.

Gold

The precious metal declined as the strong dollar sank commodities across the board.  Gold has been on a tear recently, rising for a fourth consecutive month, but has appears to have seen some profit-taking after failing to rise above $1,335.  The yellow metal appears to have some key support from China, the PBOC raised their holdings for a second consecutive month, this follows a 2-year break from any changes.  Uncertainty on how the trade war will unfold and concerns over China’s credit markets could remain key catalysts for Chinese gold purchases.  Overnight, two Chinese borrowers reportedly miss two bond payments, a sign Chinese credit markets are sensitive and will likely need further efforts from the Chinese government to support it.

Oil

West Texas Intermediate crude trades lower on the strong dollar and global growth concerns, but the next wave of selling could come from oversupply concerns when we see the OPEC monthly report tomorrow, the IEA report will come the day after.  Concerns of trade talks falling apart between the US and China will likely remain short-term risks for oil, but the worries of oversupply stemming from the US will likely remain a dominant theme as we approach the warmer months.  Last month, Saudi Arabia overdelivered on their production cuts, but that is not likely to be continuing trend for them.  Compliance will closely be watched from the OPEC + group and, despite Venezuelan crude’s expected decline, we could see oil decline if other members fail to hold up their end of cuts.

Apple

According to research firm IDC, Apple reportedly lost 19.9% in iPhone shipments in China, while Huawei saw 23.3% gain.  Apple moved up one spot to fourth place, passing Xiamoi, but still behind Huawei, Oppo, and Vivo, respectively.  Apple price cuts are heavily expected in China, but they may not see significant improvement in sales as authorized retailers have already begun offering discounts.

Markets

Global core bonds lost ground today. Risk sentiment in Europe improved after last week’s risk-off modus on the EC downgrading growth forecasts. The economic calendar in the US and EMU was almost empty. The German yield curve bear steepens with changes up to +4.1 bps (30-yr). US Treasuries behave similarly as positivism rises as China sounded upbeat on this week’s high level trade negotiations. A (preliminary) agreement or a signal of clear progress could lift sentiment further. The US yield curve edges higher with changes in the range of +1.9 bps (30-yr) to +2.5 bps (10-yr). Italian assets rebounded after Deputy PM Salvini’s centre-right League-party polled strongly in regional elections. The strong result could encourage the League to leave the current coalition with other Deputy Premier Luigi Di Maio’s 5SM, which investors perceive as positive for the political outlook. The Italian spread over 10y German yield tightens with 9 bps. The Spanish spread initially widened on rumours of snap elections, but reversed later as the government denied the news.

USD buying persisted by default today. Of late, the dollar was already testing some relevant resistance levels (including DXY 96.67 & USD/JPY 110) despite the Fed turning more dovish at the January meeting. Mid-morning, USD/JPY and the trade-weighted dollar finally broke those levels. A better equity performance and a modest rise in core yields were enough to push USD/JPY beyond the 110 psychological barrier. The USD/JPY break spilled over into EUR/USD trading (USD-buying). A better overall risk-sentiment and stable interest rate differentials between the US and Germany/EMU initially slowed an outright EUR/USD break lower, but the break-through finally occurred early in US dealings. EUR/USD is testing the 1.1290 area. The 1.1270/67 support is coming on the radar. USD/JPY is also extending gains (110.35/40 area). The break looks solid, but we don’t draw firm conclusions yet and wait for confirmation as Japanese markets reopen tomorrow morning after a long weekend.

Sterling traded with a (slightly) negative bias against the euro and the dollar. For cable (1.2875 area) underlying USD strength was in play (cf supra). At the same time, the news flow was also sterling negative. UK Q4 GDP growth disappointed (cf infra) and this was also the case for December production data. This questions last week’s relative optimism from the BoE. UK PM May will already address Parliament on Brexit on Tuesday (was scheduled on Wednesday) and is said to look for more time to renegotiate the Brexit deal with the EU. EUR/GBP gained a few ticks intraday (0.8770 area) which is a rather good performance given the EUR/USD decline.

News Headlines

Headline Norwegian inflation slowed from 3.5% Y/Y to 3.1% Y/Y in January with markets expecting less of a slowdown (3.3% Y/Y). Core inflation stabilized at 2.1% Y/Y. That’s below forecasts, but still above the Norges Bank’s 2% inflation target. Markets put in doubt the central bank’s intention to hike the policy rate a second time this cycle, from 0.75% to 1%, in March. EUR/NOK rose from 9.77 to 9.83, the highest level in a month.

Spanish international news agency EFE reported that Spanish Socialist PM Sanchez is considering calling Spanish election on April 14. The rumours were later denied according to El Confidencial, who cited unnamed government officials. These stories appear one day after mass protests in Madrid against Sanchez’ minority government. This week’s budget vote in Spanish parliament might decide on the faith of the government.

UK GDP growth decelerated from 0.6% Q/Q to 0.2% Q/Q in the final quarter of last year. Details showed especially weakness in investments (-0.5% Q/Q) and net exports (-0.4% Q/Q), while consumption continued to hover around 0.4% Q/Q, in line with the past 6 quarters. There was an exceptional contribution from government spending (1.4% Q/Q). December industrial production data were dreadful (-0.5% M/M), printing a 5^th consecutive decline.

USDJPY rallies with eyes on key resistance at 111.01 level. On the upside, resistance comes in at 111.50 level. Above this level will turn attention to the 112.00 level. Further out, we expect a possible move towards the 112.50 level. A cut through here will open the door for more gain towards the 113.00. Its daily RSI is bullish and pointing higher suggesting further upside pressure. On the downside, support comes in at the 110.00 level where a break will target the 109.50 level. Below that level will turn focus to the 109.00 level and then lower towards the 108.50 level. On the whole, USDJPY faces further upside pressure.

EURCHF created an aggressive upside spike on Monday, after the bounce off the 40-simple moving average (SMA) in the daily timeframe and on the 23.6% Fibonacci retracement level of the downward movement from 1.1710 to 1.1180, around 1.1305. Currently, the pair is consolidating within a sideways channel with upper boundary the 1.1470 level and lower boundary the 1.1180 support.

Technically, the RSI indicator is sloping upwards in the positive zone, while the stochastic oscillator is ready to post a bullish crossover within the %K and %D lines.

Upsides moves in the range are likely to find resistance at the 38.2% Fibonacci of 1.1380. There is an important resistance zone between the 50.0% Fibonacci of 1.1445 and the 1.1470 hurdle which is the next area for traders to turn their attention to in the near term. A jump above this level could challenge the upper boundary of 1.1500 and the 61.8% Fibonacci of 1.1510.

If 1.1305 support fails, then the focus would shift to the downside towards 1.1240, which if breached, would increase downside pressure and hit the 1.1180 strong support level.

Overall, if the pair penetrates the consolidation area to the downside, it would confirm the long-term bearish structure, while a jump above 61.8% Fibonacci would switch the outlook to bullish.

Daily Pivots: (S1) 1.1312; (P) 1.1332; (R1) 1.1342; More.....

EUR/USD's decline extends today and breaks 1.1289 support. The development suggests that corrective pattern from 1.1215 has completed already. Further decline should be seen through 1.1215 low to 1.1186 fibonacci level. On the upside, break of 1.1350 minor resistance will turn intraday bias neutral and bring consolidations first.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

Daily Pivots: (S1) 1.2917; (P) 1.2947; (R1) 1.2972; More....

At this point, GBP/USD is staying above 1.2854 temporary low and intraday bias neutral. More consolidation could be seen. But risk will stay on the downside as long as 1.3217 resistance holds. As noted before, current development suggests that rebound from 1.2391 has completed at 1.3217 already, after rejection by 1.3174 key resistance. On the downside, break of 1.2854 will turn bias to the downside for retesting 1.2391 low.

In the bigger picture, the rejection by 1.3174 key resistance revived the original view on GBP/USD. That is, decline from 1.4376 is possibly resuming long term down trend from 2.1161 (2007 high). Firm break of 1.2391 will solidify this bearish case and target 1.1946 (2016 low). However, decisive break of 1.3174 will invalidate this bearish case again and turn outlook bullish.

Daily Pivots: (S1) 109.59; (P) 109.84; (R1) 110.07; More...

USD/JPY's rally resumed by taking out 110.16 and reaches as high as 110.45 so far. Intraday bias is back on the upside for 61.8% retracement of 114.54 to 104.69 at 110.77. At this point, we'd still expect strong resistance from 110.77 to limit upside to bring near term reversal. On the downside, break of 109.66 minor support will turn intraday bias back to the downside for 108.49. Break will confirm completion of rebound from 104.69. However, sustained trading above 110.77 will dampen our bearish view and target a test on 114.54 resistance instead.

In the bigger picture, while the rebound from 104.69 is strong, there is no change in the view that it's a corrective move. That is, fall from 114.54, as part of the decline from 118.65 (2016 high), is not completed yet. Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. Nevertheless, sustained trading above 55 day EMA (now at 110.41) will dampen this bearish view and turn focus back to 114.54 resistance instead.

Daily Pivots: (S1) 0.9989; (P) 1.0009; (R1) 1.0023; More....

USD/CHF's rise from 0.9716 resumed quickly after brief consolidation. Intraday bias is back on the upside for 1.0128 key resistance. Decisive break there will resume larger up trend from 0.9186. On the upside, below 0.9988 minor support will turn intraday bias neutral again. But any retreat should be contained by 0.9908 support to bring rise resumption.

In the bigger picture, USD/CHF drew strong support from medium term trend line and rebounded. That suggests rise from 0.9186 is still in progress. Further break of 1.0128 will confirm up trend resumption and target 1.0342 key resistance. Nevertheless, break of 0.9716 will dampen this bullish view and at least bring deeper fall to 0.9541 key support.

Yen and Swiss Franc are trading broadly lower today thanks to rebound in global equities. Fresh selling is seen on news that White House senior counselor Kellyanne Conway said Trump may still meet Chinese President Xi Jinping in the near future. And she said that it looks like US and China are getting closer to deal. Dollar also rides on the news and jumps broadly in early US session. Meanwhile, Sterling is generally weak after poor GDP data, which showed deep contraction in December. But loss in the pound is so far limited.

Lower-level US-China trade talks started today in Beijing. Later on Thursday and Friday, high level talks will be carried out involving USTR Robert Lighthizer, Treasury Secretary Steven Mnuchin, and Chines Vice Premier Liu He. There has to be some breakthroughs in the areas of on intellectual property theft, forced technology transfer, State owned enterprises, and enforcement of agreement in order to have a deal in the near futures.

Technically, USD/CHF's rally resumed by taking out 1.0028 and is on track to retest 1.0128 high. USD/JPY also broke out of tight range, through 110.16, to resume recent rebound. EUR/USD edges lower today and is eyeing 1.1289 support. Break there will bring retest of 1.1215 low next. AUD/USD weakens today, thanks to Dollar's strength mainly, and it main challenge 0.7060 temporary low later in the session.

In European markets, currently, FTSE is up 0.77%. DAX is up 1.02%. CAC is up 1.09%. German 10-year yield is up 0.0241 at 0.114. Earlier in Asia, Hong Kong HSI rose 0.71%. China Shanghai SSE was back from holiday and rose 1.36%. Singapore Strait Times rose 0.13%. Japan was on holiday today.

UK GDP contracted -0.4% in Dec, Q4 growth slowed to 0.2%

The batch of economic data from UK is all the way poor. GDP grew only 0.2% qoq in Q4, below expectation of 0.3% qoq, and a sharp slowdown from Q3's 0.6% qoq. In December, GDP contracted -0.4% mom , much worse than expectation of 0.0% mom. Annually, GDP growth slowed to 1.4%, lowest since 2012.

ONS Head of GDP Rob Kent-Smith said in the release that " manufacturing of cars and steel products seeing steep falls and construction also declining." Also, "declines were seen across the economy in December, but single month data can be volatile meaning quarterly figures often give a better indication of the health of the economy."

Also from UK, Industrial production dropped -0.5% mom, -0.9% yoy in December versus expectation of 0.1% mom, -0.5% yoy. Manufacturing production dropped -0.7% mom, -2.1% yoy in December versus expectation of 0.2% mom, -1.1% yoy. Construction output dropped -2.8% in December versus expectation of 0.1% mom. Trade deficit narrowed to GBP -12.1B in December versus expectation of -12.0B.

Also released, Swiss CPI slowed to 0.6% yoy in January, down from 0.7% yoy and matched expectations.

UK Fox: Brexit is not the only reason for slowdown

UK Trade Minister Liam Fox said today that Brexit is not the only reason for growth slowdown. He said in a news conference that "clearly there are those who believe that Brexit is the only economic factor applying to the UK economy."

But he argued that "the predicted slowdown in a number of European economies is not disconnected from the slowdown, for example, in China". And, "the idea that Brexit is the only factor affecting the global economy is just to miss the point."

Meanwhile, even with Brexit impasse, "the chances of having a second referendum are as close to nil as I could imagine."

UK PM May to update parliament on Brexit on Tuesday

UK Prime Minister Theresa May's spokesman said she will make a statement in the parliament tomorrow. And, "that will be an update on Brexit talks and is in advance of the debate taking place on Thursday."

That was a day ahead of market expectations. But anyway, parliament debate on February 14 will be a major focus this week. Attention would be on any motions that could shift the control of Brexit from the government to the parliament. And if so, that would open up the route for lawmakers to renegotiate, delay, or even block Brexit.

EU chief Brexit negotiator Michel Barnier warned today that "this time that remains is extremely short". And he reiterated that that Brexit deal on the table " remains the best way to ensure an orderly withdrawal of the UK." Luxembourg's Prime Minister Xavier Bettel said alongside Barnier that "We never pushed for Brexit, we never demanded Brexit... The responsibility started in London and is still in London."

UK and Swiss signed agreement to protect GBP 32B trade relationship after Brexit

UK and Switzerland signed an agreement on Sunday that will protect GBP 32B trade relationship between the two countries. With the agreement, both countries will continue to trade on preferential terms after Brexit. That is, the two countries could continue to trade freely without new tariffs. But financial services are not included in the deal.

UK Trade Minister Liam Fox hailed that "Switzerland is one of the most valuable trading partners that we are seeking continuity for." And, "this is of huge economic importance to UK businesses so I'm delighted to be here in Bern ensuring continuity for 15,000 British exporters. "

Fox added that "not only will this help to support jobs throughout the UK but it will also be a solid foundation for us to build an even stronger trading relationship with Switzerland as we leave the EU."

Bank of France: GDP to growth 0.4% in Q1

Bank of France said today that according to the monthly index of business activity (MIBA), the country's GDP is expected to grow 0.4% qoq in Q1 this year.

The business sentiment indicator in manufacturing dropped to 99 in January, down from 102. in December. Services indicator dropped to 100, down from 101. Construction indicator was unchanged at 105.

Also, BoF said for February, Business leaders expect industrial production to pick up, service sector activity to accelerate and construction sector activity to continue to grow.

ECB de Guindos: Wage growth increasingly broad-based, inflation to rise over medium term

ECB Vice President Luis de Guindos sounded confidence in his comments on inflation today. He said that "wage growth has become increasingly broad-based in recent years." And, "this, together with our monetary policy measures and the ongoing economic expansion, is expected to translate into higher underlying inflation over the medium term."

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9989; (P) 1.0009; (R1) 1.0023; More....

USD/CHF's rise from 0.9716 resumed quickly after brief consolidation. Intraday bias is back on the upside for 1.0128 key resistance. Decisive break there will resume larger up trend from 0.9186. On the upside, below 0.9988 minor support will turn intraday bias neutral again. But any retreat should be contained by 0.9908 support to bring rise resumption.

In the bigger picture, USD/CHF drew strong support from medium term trend line and rebounded. That suggests rise from 0.9186 is still in progress. Further break of 1.0128 will confirm up trend resumption and target 1.0342 key resistance. Nevertheless, break of 0.9716 will dampen this bullish view and at least bring deeper fall to 0.9541 key support.

Economic Indicators Update

USD/CAD is unchanged in the Monday session. In the North American session, the pair is trading at 1.3280, up 0.02% on the day. On the release front, there are no Canadian or U.S. events. On Tuesday, the U.S. releases JOLTS Jobs Openings and Federal Reserve Chair Powell speaks at an event in Washington.

Canada’s labor market ended the week with an exclamation mark, as the economy created 66.8 thousand jobs in January, crushing the estimate of 6.5 thousand. It was the second banner reading in three months. Still, the Bank of Canada is not expected to raise rates at its next meeting on March 6. Weak oil prices are weighing on inflation, and the Canadian dollar is down 1.1 percent in February. The BoC appears to have taken page out of the Federal Reserve’s playbook and is expected to ease monetary policy this year after aggressively raising rates in 2018. Last week, BoC Deputy Governor Tim Lane said that Canada’s fundamentals were strong and unemployment was at historically-low rates. However, Lane noted that the Canadian dollar was under pressure due to lower oil prices, a soft housing market and a decline in business investment due to uncertainty over U.S. trade policies.

Investors remain apprehensive over the U.S-China trade war. Although the sides are talking, markets slipped after President Trump that he would not hold a meeting with President Xi prior to the March 2 deadline, when the U.S. is set to impose further tariffs if the sides fail to reach a deal. A third round of negotiations starts this week, with Treasury Secretary Mnuchin joining the talks later in the week. Still, with no signs of progress, there is growing alarm that the sides will not be able to reach a deal by March 2.