London Forex Report: China January FX Reserves Decline

London Forex Report: China January FX Reserves Decline

London Forex Report: China January FX Reserves decline to 3.23Trln versus 3.33Trln previous, markets were anticipating a larger decline to 3.20Trln as the PBOC has been active in the FX markets defending the Yuan. Despite non-farm payrolls rising by just 151k (mkt: 190k), the overall tone of the US labour force report was positive. The unemployment rate declined 0.1ppt to 4.9% – the first time it has dipped below 5% since the financial crisis. But the most encouraging result was average hourly earnings, which rose by a better than expected 0.5% m/m.10-year US Treasury yields were little changed and US bourses fell across the board, possibly in response to the stronger USD. The Dow Jones and S&P 500 closed 1.3% and 1.8% lower respectively. Crude oil prices failed to extend their recent gains, falling once more on Friday. A falling US rig count failed to offset the impact of rising US crude stockpiles, which are proving to be a major headwind. The USD advanced following the labour market data as the market looked past the headline number to firmer wage growth and unemployment ticking down. Risk currencies sold off across the board.

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

Fundamental: EUR is giving back gains on the headline NFP miss that spurred a spike to 1.1250, Markets are repricing views on US rate expectations this year and the gains from dovish comments by FED speakers last week are being reversed. Attention will now shift to FED Chair Yellens testimony this week.

Technical: While 1.11 provides intraday support expect rotation higher to retest offers at 1.1250. A failure at 1.11 opens pivotal test of 1.10/1.1050 prior range resistance.

Interbank Flows: Bids 1.1050 stops belwo. Offers 1.1250 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long

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

Fundamental: GBP initially rose after weaker than forecast US NFP data rallying to early New York trade high of 1.4589, Sterling then reversed course and moved to session lows at 1.4453 as focus shifted to the average hourly earnings component of the report.

Technical: While 1.4450 continues to provide intraday support expect a roatation higher to retest1.4580 a breach of offers here opens a retest of last weeks highs at 1.4660’s

Interbank Flows: Bids 1.4450 stops below. Offers 1.46 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long

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

Fundamental: USDJPY briefly dipped below long term neckline at 116.53 on mixed US data, Treasury yields initially climbed to bring USDJPY to 117.43, but stocks then sank as a risk-off response to potential Fed tightening threatened JPY. Abe advisor Honda said BOJ might have to cut rates again, do QQE3

Technical: While 118.50 acts as intraday resistance expect a retest of Friday’s lows en-route to a retest of year to date lows at 115.95. A breach of 119 re-establishes range trade.

Interbank Flows: Bids 116.50 stops below. Offers 118.50 stops above.
Retail Sentiment: Bullish
Trading Take-away: Short

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

Fundamental: Comments from BoJ over the weekend stating that the BoJ should reinforce QQE and increase available options for further easing in future by implementing additional measures in order to sustain credibility fro monetary policy. Adopting QQE with negative interest rates will enable the BoJ to demonstrate there is plenty of room for pursuing additional easing.

Technical: While 130 remains intact as support expect a rotation higher to retest highs at 132.94 and more sustained test of offers above 133 en-route to 134.

Interbank Flows: Bids 130 stops below. Offers 132.30 stops above
Retail Sentiment: Bearish
Trading Take-away: Long

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

Fundamental: The USD regained some strength on Friday, up around 1.8% against the AUD. With China out for New Year and local data light, expect some consolidation after the sharp moves last week. The risk would be an extension of the move from Friday as Asia digests the NFP data and the China FX reserve data.

Technical: While .7050 supports the current decline expect a rotation higher to test .7150 a failure here opens a full retest of last weeks highs at .7239.

Interbank Flows: Bids .7050 stops below. Offers .7150 stops above.
Retail Sentiment: Bullish
Trading Take-away: Sidelines

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

Fundamental: Last week’s domestic employment report showed a weakening in the labour market in January, while trade data printed a record annual deficit in 2015, driven by the collapse in commodity prices and despite a surge of non-energy exports in December.

Technical: While 1.3630/50 survives as support potential for broader correction to the recent decline to 1.40 offers from below. A failure at 1.3630 opens1.3430 test on the downside.

Interbank Flows: Bids 1.3630 stops below. Offers 1.39 stops above.
Retail Sentiment: Neutral
Trading Take-away: Sidelines

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