London Forex Report: Risk On The Ropes Again, ECB Next In The Ring

London Forex Report: Risk On The Ropes Again, ECB Next In The Ring

London Forex Report: Equities and oil price declines continue driven by heightened global growth concerns. Data flow was mixed – downbeat in the US but positive in the UK. US housing starts unexpectedly fell in December and even forward looking building permits contracted on the month. CPI also staged a surprised fall dragged by weaknesses in food and energy prices, further complicating the case for a Fed rate hike in March. On the contrary, UK job reports signaled continuous improvement in the labour market despite recent headwinds. USD strengthened as risk-off flows continue to dominate the markets. The USD Index overturned losses from soft US CPI as it recovered through European and US trades to close 0.1% higher at 99.09.

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

Fundamental: Markets continue to seek safe havens as the global stock markets remain pressured. EURUSD  surged to an intraday high at 1.0975 at the start of European session. However, the Euro retreated overnight due to oil’s recovery and technical rebound. Today’s major focus will be the ECB meeting and press conference.

Technical: While offers at 1.0950 contain upside reactions expect rotation to retest bids at 1.08, a breach of 1.0990 trend resistance opens a broader 1.1240 symmetry corrective objective.

Interbank Flows: Bids 1.08 stops below. Offers 1.0950 Stops above.
Retail Sentiment: Bearish
Trading Take-away: Sidelines

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

Fundamental: Despite data showing the UK unemployment rate in December fell to its lowest level since 2006 at 5.1%, the markets were disappointed by the slower than expected average earnings growth. Wage growth in the UK rose by 2%, slowing from the prior data of 2.4% and further delaying a BoE rate hike. As mentioned by BoE Governor Carney, he would like to see wage growth at or above 3% before considering a rate hike.

Technical:  While 1.4250 caps upside reactions expect a grind lower to test bids at 1.41. Only over 1.45 eases immediate downside pressure.

Interbank Flows: Bids 1.41 stops below. Offers 1.43 stops above
Retail Sentiment: Bullish
Trading Take-away: Short target 1.35

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

Fundamental: USDJPY fell to a one-year low yesterday as crude oil prices dropped near a 13-year trough and risk appetite waned. Traders believe the JPY could strengthen as many anticipate the Bank of Japan will not employ additional stimulus measures or accelerate its quantitative easing program.

Technical:  While 117.30/50 caps upside attempts expect a retest of sub 116 bids. Only above 119 eases immediate downside pressure.

Interbank Flows: Bids 115.50 stops below. Offers 117.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines

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

Fundamental:It has been a nasty washout in asset markets in the past 24 hours, with the Nikkei in particular officially trading in a bear market, while erasing gains enjoyed since the last Kuroda easing back in Oct 2014. Attention turns to today’s ECB meeting.

Technical:  While 128 caps upside reactions, expect a grind lower to test bids at 126. Only over 129 eases immediate downside pressure.

Interbank Flows: Bids 126.50 stops below. Offers 128.50 stops above
Retail Sentiment: Neutral
Trading Take-away: Sidelines

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

Fundamental: Aussie continued to grind lower to an intraday low of 0.6825 as risk sentiment deteriorates. However, a different picture has been seen overnight as AUDUSD had a last minute rebound in the US session on the handover to early Asia. As a traditional commodity currency, Aussie also shows a certain degree of sensitivity to the oil price movement. A further drop in oil’s price will definitely put pressure on it.

Technical: While .6950 caps intraday upside expect a grind lower to retest .6830’s lows en-route to .6750. Only a breach of .7050 eases immediate downside pressure.

Interbank Flows: Bids .6800 stops below. Offers .6950 stops above
Retail Sentiment: Bullish
Trading Take-away: Short 6950 target .6750 initially

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

Fundamental: With a rate cut broadly expected in an environment of poor domestic data and subdued oil prices, BoC surprised  markets with an unchanged policy rate and a somewhat neutral statement. The weaker Canadian dollar might help pull up inflation rate in Canada, acting as a shock absorber to buffer effects of lower oil prices. On the domestic front, CPI figures due Friday will be closely watched.

Technical: Bulls have the ball while 1.44 supports, expect a grind higher to test 1.47. Only below 1.4350 eases immediate bullish pressure

Interbank Flows: Bids 1.4450 stops below. Offers 1.4650 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines

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