New York Forex Report: Inflation In-focus

New York Forex Report: Inflation In-focus

New York Forex Report: US equities and bond yields have stabilised, while the broader USD remains subdued. Despite UK inflation holding up yesterday, the GBP remains an under performer ahead of retail sales on Friday. The key focus today is on US inflation. While the annual headline rate fell in December to 2.1%, as the oil price edged down in the first half of the month, the ‘core’ measure of inflation rose modestly to 1.8%. The sharp rise in the oil price in early Jan is expected to have led to a 0.4% monthly increase in the headline measure. Nevertheless, as there was an even larger increase at the same point last year, annual inflation is forecast to decelerate modestly to 2.0%. Meanwhile, the core rate is also forecast to have slowed slightly to 1.7%. Looking further forward, with economic growth above trend and the amount of slack in the economy diminishing, markets expect inflation to pick up in 2018. UK Cabinet Ministers are expected to give a series of speeches on the “Road to Brexit” in the coming weeks, starting with Foreign Secretary Johnson today who has called for cohesion behind the party line . PM May is scheduled to give a keynote speech on Saturday on UK-EU security.

NORTH AMERICA US NFIB small business optimism rose more than expected to 106.9 in January, a sign small businesses are optimistic about future outlook. The percentage of companies expecting a better economy climbed higher to 41% (from 37%) as more indicated that it is a good time to expand.

EUROPE UK inflation softened somewhat in Jan, suggesting protracted subdued inflation will complicate the policy normalization task by BOE. CPI held steady at 3.0% YoY while RPI and PPI Output tapered off to 4.0% and 2.8% YoY respectively in Jan. Core PPI Output also moderated to 2.2% YoY (Dec: +2.4%) but core CPI was the only reading that showed an uptick to 2.7% YoY in Jan (Dec: +2.5%).

ASIA Japan preliminary reading on 4Q GDP disappointing with a sharper than expected deceleration to 0.1% QoQ, its slowest in two years. Despite a rebound in private consumption to +0.5% QoQ (3Q: – 0.6%), business spending grew at a slower pace of 0.7% QoQ in 4Q (3Q: +1.0%), contrary to recent reports in business and capex spending. Negative net exports also exerted a drag on 4Q growth. In a separate release, machine tool orders sustained a 48.8% YoY increase in January, marking its 11th straight month of hefty doubledigit growth driven by continued hefty capital spending by both domestic and foreign manufacturers.

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

Technical: 1-3 Day View – Daily close below 1.2290 concerns bullish bias delaying the 1.2635 target, the failure to recapture 1.23 handle on the weekly close suggests further weakness to test 1.2165. Near term resistance sited at 1.2395

1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – The daily closing breach of 1.39 range support opens 1.3710, over 1.40 on a closing basis would stabilise the pair and suggest a return to focusing on upside objectives, near term resistance is sited at 1.3970

1-3 Week View – As 1.3836 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral

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

Technical: 1-3 Day View – Anticipated breach 108.44 saw 107.20 test overnight as 108.44 acts as resistance 103.22 is the next downside objective, only over 110 stabilises pair and opens 111

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

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

Technical: 1-3 Day View – Breach of 132.90 opens 131.60/40 next near term resistance sited at 133.30/60

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

Posted in Forex Analysis, London Forex Report, tagged with on