Market movers today

Today, focus will be mainly on the FOMC meeting in the US, with the accompanying policy announcement at 20:00 CET. We expect the Fed to maintain the fed funds target range of 0.50-0.75% in line with market pricing and consensus. At the December meeting, the Fed signalled that the economic outlook was 'uncertain' due to 'Trumponomics' but that 'almost all' FOMC members thought there were upside risks to their growth forecasts (and hence the number of Fed hikes) due to the expectations of more expansionary fiscal policy. In line with markets, we expect the Fed to hike twice this year (in June and December), with risks skewed towards a third hike. Continued strong economic data and more information about Trump's fiscal policy may trigger the Fed to hike earlier than June.

In the US, ISM manufacturing data for January is also due to be released. We expect a marginal move higher to 55.0 from 54.5 in December.

Danish housing prices and Swedish PMI manufacturing data are due out.

Selected market news

Markets have started to price in a higher Trump risk premium, as it becomes increasingly clear that protectionism and tougher immigration policy seem to be higher on Trump's priority list than the growth-friendly policies for which investors are waiting. Yesterday, the Trump administration accused Germany and Japan of devaluing their currencies to gain a competitive advantage, drawing criticism from German and Japanese officials and heightening concerns that USD competitiveness could have a prominent role on Trump's policy agenda. The comments sent EUR/USD to an eight-week high and fuelled a risk-off mood that kept Asian stocks subdued this morning, as unease about the outlook for global trade as well as bilateral relations with Japan, Europe and China is growing. Trump's pick of the conservative judge Neil Gorsuch for the Supreme Court also did nothing to ease market concerns.

Euro area HICP inflation surprised slightly on the upside yesterday (1.8% y/y from 1.1% y/y in December); however, core inflation remained below 1%. Higher inflation was seen across countries and hence, the ECB can conclude that it is not just German inflation picking up. We do not expect the higher inflation figures to change the ECB's monetary policy stance, as underlying price pressures are still weak. Although some ECB members have started to express a more hawkish stance recently, consensus in the ECB seems to be that core inflation also needs to rise before tapering will be discussed. See also Euro area inflation surprises on the upside - will core inflation follow the upward trend 31 January 2017.

In the UK, the formal process of passing Article 50 legislation in Parliament has begun, with a first vote taking place today. However, the so-called 'committee stage', where members of parliament are allowed to put forward amendments to the bill, does not start until 6 February. Recently, there have been media reports (The Times, 31 January) that Theresa May could trigger Article 50 in connection with an EU summit on 9 March.

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For the 24 hours to 23:00 GMT, the AUD rose 0.28% against the USD and closed at 0.7579.

In economic news, Australia's AiG performance of manufacturing index eased to a level of 51.2 in January, compared to a reading of 55.4 in the previous month.

LME Copper prices rose 1.1% or $64.0/MT to $5921.0/MT. Aluminium prices rose 0.8% or $13.5/MT to $1820.5/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7558, with the AUD trading 0.28% lower against the USD from yesterday's close.

Early morning data showed that, in China, Australia's largest trading partner, the NBS manufacturing PMI eased to a level of 51.3 in January, compared to market expectations of a fall to a level of 51.2 and after recording a level of 51.4 in the previous month. On the contrary, the nation's NBS non-manufacturing PMI edged-up to a level of 54.6 in January. In the previous month, the PMI had registered a level of 54.5.

The pair is expected to find support at 0.7529, and a fall through could take it to the next support level of 0.75. The pair is expected to find its first resistance at 0.7596, and a rise through could take it to the next resistance level of 0.7634.

Moving ahead, market participants will focus on Australia's trade balance and building approvals, both for December, slated to release tomorrow.

The currency pair is trading below its 20 Hr moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the EUR rose 0.9% against the USD and closed at 1.0795, after the Euro-zone's flash consumer price index (CPI) jumped more-than-expected by 1.8% on an annual basis in January, surging to its highest level in nearly four-years, a development that is likely to amplify calls for the European Central Bank to reconsider its monetary policy stance. Meanwhile, the CPI registered a rise of 1.1% in the previous month, while markets were anticipating for an advance of 1.5%. Additionally, the region's seasonally adjusted preliminary gross domestic product (GDP) showed that the economy expanded 0.5% QoQ in the fourth quarter, meeting market expectations and following a revised rise of 0.4% in the previous month. Further, the region's unemployment rate surprisingly plummeted to a seven-year low level of 9.6% in December, highlighting that the labour market is gaining strong momentum. In the previous month, the unemployment rate had registered a revised level of 9.7%, whereas investors had envisaged for an increase to 9.8%.

Separately, Germany's seasonally adjusted unemployment rate unexpectedly declined to a record low level of 5.9% in January, whereas investors were expecting the unemployment rate to remain steady at 6.0%. Moreover, the nation's retail sales unexpectedly eased 0.9% on a monthly basis in December, defying market expectations for an advance of 0.6%. In the previous month, retail sales had dropped by a revised 1.7%.

The greenback lost ground against its key counterparts, after the US CB consumer confidence index dropped to a level of 111.8 in January, surpassing market anticipation for the index to ease to a level of 112.8 and compared to a revised level of 113.3 in the previous month. Also, the nation's Chicago Fed purchasing managers index unexpectedly fell to a level of 50.3 in January, hitting its lowest level since May 2016 and confounding market expectation for a rise to a level of 55.0. In the previous month, the index recorded a revised level of 53.9 in the prior month.

In the Asian session, at GMT0400, the pair is trading at 1.0792, with the EUR trading marginally lower against the USD from yesterday's close.

The pair is expected to find support at 1.0712, and a fall through could take it to the next support level of 1.0631. The pair is expected to find its first resistance at 1.0842, and a rise through could take it to the next resistance level of 1.0891.

Ahead in the day, investors will closely monitor the release of final Markit manufacturing PMI for January across the Euro-zone and the European Commission's economic growth forecast report. Also, the US ADP employment change, ISM manufacturing and final Markit manufacturing PMI, all for January, along with construction spending for December, scheduled to release later in the day, will keep investors on their toes.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 0.7% against the USD and closed at 1.2580, after the UK's number of mortgage approvals for house purchases rose to a level of 67.9K in December, notching its highest level in nine-months, against market consensus for a rise to a level of 69.0K and following a reading of 67.5K in the previous month. Meanwhile, the nation's net consumer credit rose less-than-expected by £1.0 billion in December, growing at its slowest pace in five-months, thus signalling that Britons may have grown more cautious on spending amid rising inflation. In the prior month, net consumer credit had registered an increase of £1.9 billion, while market expected for an advance of £1.7 billion.

In the Asian session, at GMT0400, the pair is trading at 1.2571, with the GBP trading 0.07% lower against the USD from yesterday's close.

Overnight data showed that the nation's BRC shop price index dropped 1.7% YoY in January, following a revised decline of 1.4% in the prior month.

The pair is expected to find support at 1.2455, and a fall through could take it to the next support level of 1.2340. The pair is expected to find its first resistance at 1.2641, and a rise through could take it to the next resistance level of 1.2712.

Going ahead, UK's Markit manufacturing PMI and nationwide house prices, both for January, scheduled to release in a few hours, will pique a lot of market attention.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.94% against the JPY and closed at 112.66.

In the Asian session, at GMT0400, the pair is trading at 113.13, with the USD trading 0.42% higher against the JPY from yesterday’s close.

Overnight data revealed that Japan’s final Nikkei manufacturing PMI advanced to a level of 52.7 in January, expanding at its fastest pace in almost three-years, suggesting that the nation’s manufacturing sector gathered pace in the start of the new year. The preliminary figures had indicated a rise to a level of 52.8 and after recording a reading of 52.4 recorded in the previous month.

The pair is expected to find support at 112.13, and a fall through could take it to the next support level of 111.12. The pair is expected to find its first resistance at 114.05, and a rise through could take it to the next resistance level of 114.96.

Looking ahead, traders look forward to Japan’s consumer confidence index for January, due to release tomorrow.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD declined 0.57% against the CHF and closed at 0.9891.

In the Asian session, at GMT0400, the pair is trading at 0.9900, with the USD trading 0.09% higher against the CHF from yesterday’s close.

The pair is expected to find support at 0.9849, and a fall through could take it to the next support level of 0.9799. The pair is expected to find its first resistance at 0.9958, and a rise through could take it to the next resistance level of 1.0017.

Moving ahead, investors will keep a close watch on Switzerland’s real retail sales for December, set to release tomorrow and SVME-purchasing managers’ index for January, scheduled to release in some time.

The currency pair is showing convergence with its 20 Hr moving average and trading below its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD declined 0.54% against the CAD and closed at 1.3041.

The Canadian Dollar gained ground, after Canada’s gross domestic product (GDP) expanded more-than-expected by 0.4% on a monthly basis in November, driven by strength in the manufacturing sector. Markets expected for a rise of 0.3%, following a revised drop of 0.2% in the previous month.

In the Asian session, at GMT0400, the pair is trading at 1.3084, with the USD trading 0.33% higher against the CAD from yesterday’s close.

The pair is expected to find support at 1.2993, and a fall through could take it to the next support level of 1.2902. The pair is expected to find its first resistance at 1.3149, and a rise through could take it to the next resistance level of 1.3214.

Investors this afternoon will await Canada’s RBC manufacturing PMI for January.

The currency pair is trading above its 20 Hr moving average and showing convergence with its 50 Hr moving average.

Global Markets:

• Asian stock markets: Nikkei up 0.25 %, Hang Seng fell 0.75 %, ASX 200 rose 0.45 %
• Commodities: Gold at $1211 (+0.02 %), Silver at $17.51 (-0.17 %), WTI Oil at $52.70 (-0.20 %), Brent Oil at $55.40 (-0.30 %)
• Rates: US 10-year yield at 2.47, UK 10-year yield at 1.43, German 10-year yield at 0.44

News & Data:

• China Manufacturing PMI Jan: 51.3 (est. 51.2, prev. 51.4)
• China Non-Manufacturing PMI Jan: 54.6 (prev. 54.5)
• New Zealand Unemployment Rate Q4: 5.2% (est. 4.80%, prev. 4.90%)
• New Zealand Employment Change (QoQ) Q4: 0.8% (est. 0.70%, prev. 1.40%)
• New Zealand Participation Rate Q4: 70.5% (est. 70.20%, prev. 70.10%)
• Australia AIG Manufacturing Index Jan: 51.2 (prev. 55.4)
• Japan Nikkei Manufacturing PMI Jan F: 52.7 (prev. 52.8)
• South Korea Nikkei Manufacturing PMI Jan: 49 (prev. 49.4)
• South Korea Trade Balance (USD) Jan: 3200M (prev. 6800M)
• South Korea Exports (YoY) Jan: 11.2% (est. 8.70%, prev. 6.40%)
• South Korea Imports (YoY) Jan: 18.6% (est. 8.50%, prev. 8.00%)
• NIESR UK Outlook 2016 GDP Growth: 2.0% – 2017 GDP Growth: 1.7% – 2018 GDP Growth: 1.9%

Markets Update:

The US Dollar declined overnight and the Yen was in demand amid broad risk aversion in global markets. Concerns about the introduced measures by the Trump administration and uncertainty what will follow next have led to profit-taking in stocks. In the FX market, traders and investors were seeking a safe haven in the Japanese Yen.

The Euro remained bid after a strong rally in yesterday’s early NY session. Higher than expected Euro Zone inflation data led to broad EUR demand and pushed EUR/USD above 1.08. Resistance is now seen at 1.0875, and a break above could signal that the rally could extend to 1.10.

The main event today will be the Fed’s interest rate decision, and the central bank is expected to keep rates unchanged.

Upcoming Events:

• 08:45 GMT – Italian Manufacturing PMI
• 08:50 GMT – French Manufacturing PMI
• 08:55 GMT – German Manufacturing PMI
• 09:00 GMT – Euro Zone Manufacturing PMI
• 09:30 GMT – UK Manufacturing PMI
• 13:15 GMT – US ADP Nonfarm Employment Change
• 15:00 GMT – US ISM Manufacturing PMI
• 15:30 GMT – US Crude Oil Inventories
• 19:00 GMT – Federal Reserve Interest Rate Decision
• 19:00 GMT – FOMC Statement

EURUSD

The EURUSD had a bullish momentum yesterday after a false break below the bullish channel and 1.0650 key support as you can see on my H1 chart below. This fact keeps the bullish phase remains valid. The bias is bullish in nearest term testing 1.0850/75 region. Immediate support is seen around 1.0750. A clear break below that area could lead price to neutral zone in nearest term testing 1.0700 area but key support remains at 1.0650. Overall I remain neutral.

GBPUSD

The GBPUSD had a bullish momentum yesterday topped at 1.2596. The bias is bullish in nearest term testing 1.2670 area. Immediate support is seen around 1.2520. A clear break below that area could lead price to neutral zone in nearest term testing 1.2470 area. On the upside, a clear break and daily close above 1.2670 would expose 1.2790 key resistance. Overall I remain neutral but price is still in a bullish phase since bounced from 1.2000 psychological level.

USDJPY

The USDJPY continued its bearish momentum yesterday bottomed at 112.07. Price traded higher earlier today in Asian session hit 113.15. The bias remains bearish in nearest term testing 111.30. Immediate resistance is seen around 113.50. A clear break above that area could lead price to neutral zone in nearest term testing 114.00/20 region but as long as stay below 115.60 I still prefer a bearish scenario at this phase and any upside pullback should be seen as a good opportunity to sell.

USDCHF

The USDCHF had a bearish momentum yesterday bottomed at 0.9861. The bias is bearish in nearest term testing 0.9800 area. Immediate resistance is seen around 0.9950. A clear break above that area could lead price to neutral zone in nearest term testing 1.0000 area. Overall I remain neutral but price is still in a valid bearish phase since fell from 1.0335 (double top).

Key Points:

• Price action trading between a channel.
• RSI Oscillator close to oversold.
• Watch for a bounce towards the bearish trend line in the days ahead.

The USDJPY has been on a veritable roller coaster over the past few weeks as the currency has reacted to all sorts of sentiment shocks. Subsequently, price action has swung relatively consistently between the low at 112.50, and the short term high around 115.37, as it sought to form a sideways channel. However, the pair could potentially be about to reverse direction given some of the interesting technical factors.

In particular, a cursory review of the 4-hr chart demonstrates the current conundrum that faces the Dollar-Yen. Price action is currently resting upon the lower constraint of the short-term channel whilst the RSI Oscillator is continuing to trend lower towards oversold levels. Additionally, there is a relatively strong layer of support just below the pair’s current level.

Subsequently, there are plenty of technical indicators that suggest we are likely to see a retracement in the coming days. In particular, the pressure is building within the RSI Oscillator, as it moves towards oversold levels, which is likely to mean that a bounce will occur.

However, there is plenty of volatility currently flooding into the US Dollar cross pairs as President Trump stamps his peculiar form of leadership upon currency markets. The past 24 hours has seen the leader brand the Yen as overvalued which has caused plenty of air to evaporate out of the pair. However, the real risk is that President Trump may choose to take unilateral action on the issue which could have a deleterious impact upon the Japanese Yen’s current valuation. Subsequently, it would be worthwhile monitoring the political developments in the weeks ahead.

Ultimately, the technical factors currently argue that a retracement is the likely path ahead for the pair. Subsequently, the most likely scenario is one in which the pair trends sharply higher towards the falling bearish trend line around the 114.65 mark, and the top of the channel at 115.39 in extension. However, keep a close watch on the US Federal Funds Rate decision as the central bank could ultimately provide the markets with a surprise.