Sample Category Title

The US dollar edges lower due to bearish inertia across the board. On the daily chart, the pair is still hovering above last May’s lows of 126.50 as the bulls strive to keep the outlook rosy in the medium-term. The price action has stabilised above 127.80 with the latest bounce above 128.90 suggesting an improved mood. Still, the bulls will need to clear the faded peak at 131.50 before they could regain the upper hand. Otherwise, a drop below 128.30 could make the greenback walk on thin ice above 126.50.

Markets

German Bunds extended their underperformance against US Treasuries as ECB protagonists keep hitting the same nail. 50 bps rate hikes seem granted at least in February and March with current consensus suggesting rate hikes in May and June as well. This hawkish path clinches with the drop in yields since the start of the year. It lasted until last Thursday before core bonds – and Bunds in particular – faced new selling pressure. German yields added 5.1 bps (2-yr) to 14.2 bps (30-yr) on a daily basis. A 10% rise in the reference European gas contract (TTF) played its role as well as colder/normal winter weather arrives. Daily changes on the US yield curve ranged between +4.5 bps (2-yr) and +9.3 bps (30-yr). The sell-off on bond markets unlike on Thursday didn’t spill into stock markets. Main European indices narrowly held on to small gains for most of the session while US benchmarks rallied into the weekend in a tech-driven move. Nasdaq rose by 2.6% with the S&P (1.9%) and Dow (1%) following. From a relative point of view, the US has been lagging Europe during the NY rally. The relative yield support in combination with positive risk vibes helped the euro to a weekly close above 1.08 (1.0856). The pair this morning in thin trading (lunar NY celebrations in China, Hong Kong, South-Korea,…) makes a first attempt at 1.09 with next resistance at 1.0942 (50% retracement on 2021-2022 decline). The trade-weighted dollar closed almost spot on the 102 big figure and is testing the sell-off low at 101.53 as well this morning. Sterling performed well last week with EUR/GBP failing to take out the resistance area roughly between 0.8850 and 0.89 as a batch of decent UK data (apart from Friday’s retail sales) suggested that the Bank of England won’t be able to drop its guard yet when comes to battling inflation. EUR/GBP this morning nevertheless joins the EUR/USD move higher with the pair changing hands around 0.8775.

Today’s eco calendar is thin with January EMU consumer confidence and some ECB speeches the sole events. We expect bonds to remain under (more modest) selling pressure while keeping a close eye on stock markets. Their strong start to they year is at odds with our market view (related to complacency around central banks’ reaction functions). On FX, a test of 1.0941 resistance is becoming unavoidable. Tomorrow will be more interesting with global PMI releases. Consensus expects a marginal improvement - though still sub 50 - from December levels which would reflect the less pessimistic vibe on growth since the start of the year. Other things to watch are the US Treasury’s end-of-month refinancing operation, the continuation of Q4 earnings season and the first estimate of US Q4 GDP on Thursday.

New Headlines

South America’s two biggest economies, Brazil and Argentina, will announce the start of preparatory works on a common currency. Dubbed the “sur” by Brazil, it would create the world’s second-largest currency bloc, after the euro, and reduce reliance on the USD. The plan is still at a very preliminary stage and will be discussed at a summit in Buenos Aires this week. Its initial focus is on Brazil and Argentina but both will invite other Latin American countries to join. A union that covers all of Latin America would represent about 5% of GDP compared to the euro area’s 14%. The idea is not new and there have been talks in the past but they often stranded on (usually rightwing) political opposition and persistent macroeconomic imbalances of both countries.

European Council President Charles Michel proposes several steps to strengthen European economies in a response to the US’s Inflation Reduction Act. In an interview with Handelsblatt published yesterday, he said a successor to the social bonds of the SURE program would allow governments short in cash to make more green investments. The SURE program was launched early in the pandemic to finance short-term employment schemes. Michel also said there was a need for a “sovereignty fund” with the participation of the European Investment Bank. As EU member states are shareholders in the EIB, they would have more say and benefit directly from the investments made. Michel considers this concept as a more realistic alternative than issuing bonds similar as those under the EU’s post-pandemic recovery fund.

EURUSD steadies over inflation relief

The euro holds steady as inflation slows down. With prices of oil and gas falling back, Europe could put the much-daunted winter behind. Inflation effectively decelerated in the Euro zone in December, which would give policymakers some relief. Easing pressures have triggered expectations that the ECB might reassess its tightening schedule. The prospect of a 25-bp increment in March following a 50-bp penciled in next month could drive the price action forward. The single currency has more upside should data suggest that economic fundamentals keep the recession at bay. The pair is to test 1.1100 with 1.0510 as a fresh support.

USDCAD awaits another BoC hike

The Canadian dollar steadies as the market wagers on a 25-bp hike by the BoC. Inflation eased more than expected in December thanks to lower oil prices. But core components excluding food and energy remained high which shows that pressures notably from a tight job market still linger. The range bound price action suggests that traders expect both central banks to be near their peak rates. As their interest rates seemingly move in tandem, there is little opportunity for carry trades. What might set the US apart could be its resilience in case of a mild recession. The pair is testing the floor at 1.3230 and 1.3680 is a key resistance.

UKOIL struggles as global economy staggers

Brent crude softens as weak economic data rattle the market. Lacklustre performance across the commodity spectrum shows that traders still worry about the economic cost of the widespread policy tightening. Weak data out of the top consumers keep a lid on market sentiment. Disappointing US manufacturing output raises concerns of a hard-pushed soft-landing. While China recorded its worst growth since 1976 with GDP expanding by a mere 3.0% last year. Meanwhile, a surprise surge in US oil inventories tips the balance in favour of supply. The price is hovering between 70.00 and 89.00.

SPX 500 falls as earnings may disappoint

The S&P 500 slips as the market braces for a downtrend in earnings with the full impact of higher rates. The macroenvironment does not help with weak economic data and hawkish Fed comments being a rather bearish mix. The tightening has surely left its mark with producer prices and retail sales falling along the CPI. A feeble GDP reading could further fuel recession worries. Meanwhile, some officials’ insistence on pushing rates beyond 5% raises concerns of overshooting. After all, they were judged to be too slow to take the ‘transitory’ label off the inflation problem. The index is falling towards 3770. 4100 remains a key resistance.

Daily Pivots: (S1) 1.3337; (P) 1.3418; (R1) 1.3461; More....

Intraday bias in USD/CAD remains neutral for the moment. On the downside, break of 1.3320 will resume the fall from 1.3704 to 1.3224 key support level. On the upside, though, above 1.3519 will turn bias back to the upside for 1.3704 resistance.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).

Daily Pivots: (S1) 0.6925; (P) 0.6949; (R1) 0.6993; More...

Intraday bias in AUD/USD stays neutral for consolidation below 0.7062. Overall outlook stays bullish as long as 0.6721 support holds. On the upside, break of 0.7062 will resume rise from 0.6169 to 61.8% projection of 0.6169 to 0.6892 from 0.6721 at 0.7168 next. However, firm break of 0.6721 will indicate short term topping, and turn bias back to the downside.

In the bigger picture, corrective decline from 0.8006 (2021 high) should have completed with three waves down to 0.6169 (2022 low). Further rally should be seen to 61.8% retracement of 0.8006 to 0.6169 at 0.7304. Sustained break there will pave the way to retest 0.8006. This will now remain the favored case as long as 0.6721 support holds.

Daily Pivots: (S1) 128.41; (P) 129.51; (R1) 130.67; More...

Intraday bias in USD/JPY remains neutral at this point. On the downside, break of 127.20 will resume the whole decline from 151.93 and target 121.43 fibonacci level. Nevertheless, on the upside, break of 131.56 should confirm short term bottoming, and turn bias back to the upside for stronger rebound.

In the bigger picture, the break of 55 week EMA (now at 131.47) raises the chance of medium term bearish reversal, but that's not confirmed yet. Strong support could be seen around 61.8% retracement of 102.58 to 151.93 at 121.43 and 38.2% retracement of 75.56 to 151.93 at 122.75 to bring rebound. But break of 131.56 resistance is needed to indicate bottoming first. Otherwise further fall will remain in favor.

Daily Pivots: (S1) 0.9152; (P) 0.9193; (R1) 0.9245; More...

Intraday bias in USD/CHF stays neutral, and outlook remains bearish with 0.9407 resistance intact. On the downside, sustained break of 61.8% projection of 1.0146 to 0.9355 from 0.9545 at 0.9056 will pave the way to 100% projection at 0.8754, which is close to 0.8756 long term support. Nevertheless, on the upside, break of 0.9407 should confirm short term bottoming and turn bias back to the upside.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 should be a medium term down trend itself. Next target is a test on 0.8756 low. Strong support should be seen there to bring rebound. Still, further decline will now be expected as long as 0.9407 resistance holds, in any case.

Daily Pivots: (S1) 1.2354; (P) 1.2380; (R1) 1.2423; More...

Intraday bias in GBP/USD remains neutral first. On the upside, decisive break of 1.2445 will confirm resumption of whole rise from 1.0351. Next target will be 1.2759 fibonacci level. On the downside, break of 1.2252 minor support will turn bias to the downside, and extend the corrective pattern from 1.2445 with another falling leg.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248.

The week started slowly in Asia, as many markets were closed due to the Chinese New Year holiday. But those that were open benefited from the positive vibes from the US markets last Friday.

US equities rally, led by tech stocks

The S&P500 rallied 1.89% and flirted with the 200-DMA again, and closed the week a stone’s throw from the ceiling of the 2022-to-date bearish trend.

Nasdaq did even better. The index rallied 2.86%, boosted by a well-deserved 8.50% rally from Netflix - which not only announced better-than-expected results in the Q4, but also a mouth-watering beat on the subscription growth end, with 7.7 mio new subscribers – a number that we thought we would hear only during a pandemic!

Google, on the other hand, jumped 5.72%, but for a less glamorous reason. The company said it will fire 6% of its workforce, which is around 12’000 jobs globally. Investors heard ‘yes, that will clearly improve the cloud profitability!’

In total, Amazon, Microsoft and Google will be cutting 40’000 jobs.

Fed’s quiet period

The quiet period for Federal Reserve (Fed) officials will help us digest what has been said over the past weeks.

In summary, we know that the Fed will further slow the size of its rate hikes in the coming months. $

But the fact that the Fed will raise by only 25bp next meeting doesn’t mean that it won’t continue hiking the rates. The rates will likely go above 5% in the Q1.

Focus on earnings

Microsoft, Johnson&Johnson, General Electric,Texas Instruments, Intel, Tesla Mastercard, Visa, Chevron and American Express are among companies that will go to the earnings confessional this week.

Big Tech earnings projections are down by about 5% since October.

Yet, expectations went sufficiently low that there is plenty of room for a positive surprise, as has been the case with Netflix.

FX and energy

The dollar kicked off the week under pressure. The EURUSD already hit the 1.09 mark early in the session, for the first time since last April, and is just a couple of pips away from the major 50% retracement on 2021-2022 selloff.

PMI data due tomorrow could confirm that the European economies took a softer hit thanks to mild start to the winter, and cheaper energy prices as a result of it.

And sufficiently strong PMI data, combined to the negative pressure in the US dollar into the Fed meeting, could help the EURUSD take a chance on the 1.10 resistance in the coming sessions.

In energy, crude oil posted its second straight week of gains on Friday, as the Chinese reopening story and prospects of higher global demand, and around 1 mbpd gap between supply and demand outweighed the recession fears.

The latest rebound in European nat gas prices, and the fact that we now have cold and snow in Europe could also tilt the balance further to the upside.

The barrel of American crude spent last week above the 50-DMA, now around $78pb, but couldn’t clear the 100-DMA, which stands around $82pb.

The next target for the oil bulls is a move above the $82pb, for a potential extension of gains toward the $87/88 range.

Market movers today

A quiet start to the week, with consumer confidence for the euro area and Denmark the only releases of interest. Although consumer confidence rose for a second consecutive month in December, it remains extremely low from a historical perspective and is at odds with the relative resilience in consumer spending seen in actual hard data so far.

Later this week, markets will focus on the PMIs for January (Tuesday) and US GDP figures (Thursday), while the earnings season continues.

The 60 second overview

US debt ceiling: Last week the US government hit its statutory debt limit at USD 31.4 trillion, and the treasury is now utilizing the so-called 'extraordinary measures' (for example delaying payments to government workers' pension funds) to avoid a default. The measures are expected to last only until around June, however. Over the weekend a bi-partisan congress group suggested changing the debt ceiling from a fixed dollar amount to a percentage of economic output, which would reduce the risk of the government hitting the ceiling while still limiting growth in national debt. That said, the details of the proposal are not yet known, and a near-term solution appears elusive as some Republican lawmakers in the House of Representatives have pushed for steep spending cuts in return of supporting the debt ceiling raise.

Market sentiment: Risk sentiment recovered late last Friday, and the positive tone continued in Japan this morning, as markets digest the mixed economic signals. Last week's December US retail sales and industrial production data pointed towards a clear slowdown in activity but consensus is looking for an uptick especially in the euro area leading indicators, when the January PMIs are released tomorrow. Markets are already looking ahead towards the next round of central bank meetings next week, although both the ECB and the Fed are well priced for 50bp and 25bp hikes, respectively.

FI: European yields ended last week higher after ECB's Lagarde as well as other ECB officials stated that that it was much too premature to speculate in a slowdown of the rate hikes and that 50bp at the next two meetings was still in place.

FX: Last week was generally characterised by a stabilisation in the asset price moves that had otherwise characterised the beginning of the year. The rally in risk and FI levelled off and the move higher in EUR/USD slowed. In FX spot markets GBP notably had a strong week driven by both domestic data releases and defensive stocks outperforming cyclicals. EUR/GBP is consequently close to the lowest levels since December. While EUR/NOK remains in the 10.70s last week's SEK rally has brought EUR/SEK back below the 11.20 mark. EUR/USD remains below the 1.09 mark.

Credit: According to data from EPFR Global European domiciled high-yield funds recorded their biggest weekly fund inflow in 41 weeks last week as investor appetite for credit risk returned. This bodes well for continued high primary bond activity in the coming weeks. Friday, credit markets saw only small changes with ITraxx-Xover 1bp wider at 429bp while Main was unchanged at 81.