London Forex Report: China Calls Fake News

London Forex Report: China Calls Fake News

London Forex Report: Bond bears were out yesterday as a Bloomberg news article suggesting that China may taper its UST bond purchases saw the 10-year yield spike to 2.595% (nearing its March 2017 high of 2.63%) before pulling back to close nearly unchanged at 2.55% due to a strong US$20b note auction. Note this comes ahead of potential US-China trade tensions that may resurface this year. Currently, China holds US$1.19t of UST bonds, but a similar warning episode in 2009 proved to be transient as such overnight SAFE responded to yesterday’s unsubstantiated Bloomberg report saying it could be based on erroneous information, that its investments in USTs are market driven and the reserve management department is a responsible investor. Meanwhile, Wall Street retreated for the first time this year, partly amid news that there’s an increasing likelihood of Trump withdrawing from NAFTA.

NORTH AMERICA MBA mortgage applications reported a 8.3% WoW gain for the week ended Jan 5 but previous week’s gain was revised downwards to a 1.6% decline, signalling patchy momentum in the US housing market. In another release, wholesale inventories grew slightly quicker than initially estimated by 0.8% MoM in Nov, shrugging off the 0.4% MoM decline in Oct shored up by increases in both durable and non-durable goods along with higher sales, pushing down the inventory/ sales ratio for a 4th straight month to 1.24x, adding to signs of improving demand. On the inflation front, easier readings in import and export price indices continued to reaffirm the fact of still subdued inflationary pressure. Fed’s Evans opined his preference for a rate hike pause and wait till mid-2018, with Bostic also chiming in to say “I am comfortable continuing with a slow removal of policy accommodation”. However, Kaplan warned of the “risk of overheating” and Bullard expects “the oil price increase to feed through to inflation expectations”, but “how sustainable is the oil price increase and to what extent will it stimulate US production”

EUROPE UK data bag was mixed as pick-ups in industrial production and construction output were offset by a bigger than expected widening in trade deficit, no thanks to the weaker sterling. The increase in industrial production quickened to 0.4% MoM in Nov from an upwardly revised 0.2% MoM gain a month ago, driven by faster expansion in manufacturing output (+0.4% vs +0.3%) and a rebound in electricity production, which offset the decline in mining. Sustained rise in industrial production (8th straight month of growth) will continue to help underpin growth in the UK economy. Construction output snapped a two-month decline and increased 0.4% MoM in Nov, as increases in new housing overshadowed decline in infrastructure works.

ASIA SAFE responded to yesterday’s unsubstantiated Bloomberg report that China was reducing or halting purchases of USTs, saying it could be based on erroneous information, that its investments in USTs are market driven and the reserve management department is a responsible investor. With Chinese reserve growth having slowed sharply in recent years, the impact on any allocation shift would have been relatively small and we are sceptical China would make large divestments in a short period anyway.

EURUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 1.1910 the next downside objective,as 1.20 caps intraday corrections markets focus shifts to a test of 1.1846, failure below here concerns the bullish bias and opens a more sustained downside move. Over 1.20 reestablishes upside momentum and and a 1.2130 test and the broader 1.2276 swing objective

1-3 Week View – 1.2130 the next upside objective. Weekly close below 1.16 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Prior cycle highs of 1.3545 achieved as 1.3490 supports expect a test of 1.3657, only below 1.3450 concerns the near term bullish bias

1-3 Week View – 1.3263 achieved as this acts as support 1.3836 is the next upside objective only a close back below 1.30 would jeopardise the bullish advance.
Retail Sentiment: Bearish
Trading Take-away: Sidelines

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Anticipated 113.30/60 resistance capped the advance a daily close breach of 112 will open a retest of pivotal 110.80/60, near term resistance is sited 112.20

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bullish
Trading Take-away: Short

EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – 136 the primary upside objective is achieved expect 136.70/137 to cap advance on initial test, pivotal 133.30 support test underway failure here will open a quick retest of 131 consolidation support.

1-3 Week View – 136.10 is the principle upside objective , rotation within the broader range persists breach of 132.20 sets a retest of 131.50, a closing breach of 131 concerns the bullish consolidation bias.
Retail Sentiment: Bullish
Trading Take-away: Short