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USD risk skewewd to the uupside ahead of CPI report

The last jobs report is still in everybody’s mind as it had some unexpected consequences. Indeed, the upside surprise in wage growth triggered last week equity sell-off and send equity volatility through the roof. The January CPI figures, which are due for release this afternoon at GMT 13:30 pm, will be highly scrutinized as a better-than-expected read could potentially trigger another equity sell-off.

The headline CPI is expected to rise 1.9%y/y following an increase of 2.1% in December. Market participants anticipate the core CPI to increase 1.7%y/y for January following a rise of 1.8% in the previous. It would not be surprising to see a stronger reading in headline CPI, thanks to a surge in energy prices. Regarding the core measure, it is unlikely that the cost of rental accommodation and healthcare accelerate further in January. Finally, the persistent weakness in the greenback could give an extra boost to US prices. On a trade-weighted-basis, the dollar fell more 3% just in January, following a decrease of 1.2% in November and 1.1% in December.

During the Asian session, the US dollar stayed on the back foot, as investors don’t know where to stand ahead of the release. We think that the risk is significantly skewed to the upside as investors remain mostly short USD.

Confusing JPY

Japan's 4Q 2017 real GDP rose 0.1% Q/Q and annual 0.5% Q/Q, below expectation for annualized 1.0% increase. However, the Japanese economy has now experienced two years of growth. In a marginal shift Private consumption rose 0.5% Q/Q suggesting household are becoming more confident in economic outlook. JPY continues to appreciate bit overall behavior is confusing. Historical relationship between USDJPY and yields has totally decoupled. During recent period of volatility FX traders favored haven currencies like the JPY and CHF, as well as the EUR.

Yet vol hast decreased significantly, as US interest expectations shown by 10-year breakeven has fallen. Japanese government leaders confirmed their confidence in BoJ Governor Kuroda, bolstering expectations that he will be reappointed for an uncommon second term. Kuroda dovish pedigree indicated at talk of early exit is unwarranted. Clearly, from today data growth has returned but hardly strong enough to demand investor’s attention (especial considering jpy inverse relationship between strength and exprt growth). USDJPY 107.30 “line-in-the-sand” failed to put up much of a fight.

UK inflation in line with expectations but careful with doldrums risk

UK January Consumer Price Index Y/Y ended at 3.0%, in line with expectations and confirming the view of the Bank of England to tighten monetary policy sooner than expected (probably in May 2018), largest contributors to this increase (CPIH Y/Y data) being Housing & Household Services (+0.52%), Transportation (+0.43%) and Recreation & Culture (+0.41%). Recent data are bad news for UK consumers, as wage growth remains weak, valued at 2.20 as of September 2017 in nominal value according to the Office for National Statistics and currently estimated at 2.50%. GBP/USD decrease since Brexit referendum (-3.60% since June 2016; +2.94% Year to date) also contributed to inflation increase, outbidding costs of imported goods and services. Despite this inflationary scenario, the BoE remains optimistic and maintains its prevision of an inflation rate at 2.40% for 2018, expecting an inflation slowdown for 2018 due to recent commodity prices pullback (Bloomberg Commodity Index down by 4.47% since the end of January).

No clear reactions were noticed following the announcement. The FTSE 100 and FTSE 250 closed at 7’168 (-0.16%) and 19’320 (-0.31%) points while GBP/USD and GBP/EUR pairs were maintained at 1.3894 and 1.1246.

We expect Brexit negotiations to be the main factor as to determine whether the BoE will be able to maintain price stability for the coming year, as a weaker GBP would cause further harm to UK purchasing power (UK consumer spending gives first signs of weakness according to a recent payment processing company published data on UK payment processing). In any case a sudden rate hike would cause further harm by exposing households holding consumer credits or real-estate loan to higher interest rates, coupled with strong inflation.

Crude oil slowly continues its fall, trading below 59. Hourly resistance at 64.77 (11/01/2017) keeps being distanced while supports stand at 55.82 (07/12/2017 low) and 53.89 (01/11/2017). The technical structure suggests further downside moves.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness is very likely. For the time being, the pair lies in an upside trend since June 2017. Support lies at 42.20 (16/11/2016) while resistance is located at 77.83 (20/11/2014). Crude oil is trading largely above its 200 DMA.

Silver increase weakens, though reversing pattern pattern is maintained and points toward a rise around 16.75. Silver currently trades between hourly resistance at 17.07 (09/11/2017 high) and support at 16.03 (05/12/2017 low). The technical structure suggests further short-term increase.

In the long-term, the trend remains negative/ sideways. Further downside is very likely. The pair is trading below its 200 DMA. Resistance is located at 21.58 (10/07/2014 high). Strong support can be found at 11.75 (20/04/2009).

Gold is recovering after its recent strong sell-off. Resistance is located at 1337 (12/09/2017) while further resistance remains at 1358 (08/09/2017). Supports are given at 1306 (04/01/2018 low) and 1290 (16/10/2017). The technical structure suggests further upside moves.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1'392 (17/03/2014) is required to confirm it. A major support can be found at 1'045 (05/02/2010 low).

abilize between 7'000 - 12'000 in 2018. Bitcoin is trading above its 200 DMA (6'500 range).

Bitcoin is maintained at the range of 8800. Strong support and resistance stand at 5605 (13/11/2017 low) and 12130 (18/01/2018 high). The short-term technical structure suggests further sideways moves.

In the long-term, the digital currency has had an exponential growth but also presented important downturns. There is decent likelihood that the currency could stabilize between 7'000 - 12'000 in 2018. Bitcoin is trading above its 200 DMA (6'500 range).

EUR/CHF is heading higher and reached back the 1.155 range early this morning. Hourly resistance at 1.15850 (19/10/2017 high) is approaching while strong resistance at 1.1833 (15/01/2018 high) remains. Hourly supports are given at 1.14269 (04/10/2017 low) and 1.1388 (02/10 2017 low).

In the longer term, the technical structure has reversed. Strong resistance is given at 1.20 (level before the unpeg). Yet, the ECB's slowing QE program is likely to cause buying pressures on the euro, which should weigh in favour of the EUR/CHF. Support can be found at 1.0234 (20/04/2015 low).

EUR/GBP is trading higher and approaches resistance at 0.8929 (12/01/2018 high). Hourly support remains at 0.8687 (25/01/2018). The technical structure suggests further short-term upside move.

In the long-term, the pair has largely recovered from 2015 lows. The technical structure suggests further upside pressure. The pair is trading above its 200 DMA. Strong resistance can be found at 0.9500 (psychological level) while support remains at 0.8304 (05/12/2016 low).

AUD/USD bounced back at 0.7759 (09/02/2018 low) and continues its retracement, breaking resistance at 0.7884 (19/10/2017 high) and heading further up. Hourly resistance and support remain at 0.7925 (12/01/2018 high) and 0.7638 (15/12/2017 low). The technical structure suggests further short-term upside moves.

In the long-term, the upward trend resumes after failing to reach key resistance at 0.8164 (14/05/2015 low). Key support stands at 0.6009 (31/10/2008 low). A break of the key resistance at 0.8164 (14/05/2015 high) is needed to invalidate our long-term bearish view.

USD/CAD is stabilizing and maintained at yesterday's range. The pair lies between hourly resistance at 1.2748 (24/11/2017 high) and support given at 1.2480 (20/10/2017 low). The technical structure indicates that further shortterm side trading is expected.

In the longer term, the pair is trading between resistance point at 1.3805 (05/05/2017 high) and support at 1.2128 (18/06/2015 low). Strong resistance is given at 1.4690 (22/01/2016 high). The pair is likely to head lower. The pairs is trading below its 200 DMA

USD/CHF is weakening. The declining trend line remains intact, heading towards resistance at 0.9257 (01/02/2018 low). Hourly resistance stands at 0.9559 (24/01/2018 high) while further resistance remains at 0.9668 (17/01/2018 high).

In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Support at 0.9259 (24/08/2015 low) is attainable. Key support remains at 0.9072 (07/05/2015 low) while resistance at 1.0344 (15/12/2016 high) is distanced. The technical structure favours a long term bullish bias since the unpeg in January 2015.