New York Forex Report: Markets Pause Ahead of Inflation Data

New York Forex Report: Markets Pause Ahead of Inflation Data

New York Forex Report: There are no top or second tier data releases today .UK (Tue) and US (Wed) inflation represent the critical data releases this week. Last month, UK inflation dropped from 3.1% to 3.0%, and from here, the medium-term trajectory is likely to be downwards given the impact of GBP’s post Brexit depreciation starts to dissipate. With regard to US inflation, markets expect to see small declines in both headline and core CPI values, which may alleviate some of the fears that the pace of Fed policy tightening will be increased. Also of importance, for the UK, will be a series of speeches – the “Road to Brexit” – by UK Cabinet ministers including PM Theresa May, David Davis, Boris Johnson and Liam Fox over the coming weeks. GBP has shown its sensitivity to Brexit-related developments, selling off to Barnier’s warning that a transition deal is “not a given”, and therefore these will be watched closely.

NORTH AMERICA US wholesale inventories moderated less than initially estimated to 0.4% MoM in Dec (Nov: +0.6%). The slower increase was a result of slower gains in non-durable goods namely drugs, which offset sustained gains in durable goods led by auto and computers. Sales also softened to 1.2% MoM (Nov: +1.9%) dragged by declines in auto and computer sales. Pushing the inventory/ sales ratio lower to 1.22, its lowest since Oct-14 indicating improving demand

EUROPE UK data skewed to the negative side. Industrial production contracted more than expected by 1.3% MoM in Dec (Nov: +0.3% revised), marking its first decline in nine months. This came despite a pick-up in manufacturing production (+0.3% vs +0.2%), as sharp plunges in mining & quarrying, and oil & gas pulled overall production down. In a separate release, visible trade deficit unexpectedly widened to £13.6bn in Dec, its biggest deficit since Sept-16 as imports rose at a faster pace of 3.8% vs the 1.5% MoM increase in exports. Meanwhile, sustained 0.5% MoM gains in NIESR GDP estimate showed the UK economy is still expected to register steady growth ahead.

ASIA Japan tertiary industry index surprised on the downside by contracting 0.2% MoM in Decr, dragged by declines in retail trade, transport, information and communication, finance and insurance, among others, reflecting a slowing services sector.

EURUSD
Outlook: Short Term (1-3 Days): Bearish – 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 1.2305/15

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: Neutral
Trading Take-away: Neutral

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

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

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

Technical: 1-3 Day View – Anticipated retest of 108.44 bids attracts buyers again while 110 contains upside correction expect a breach 108.44 over 110 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

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

Technical: 1-3 Day View – As pivotal 133.30 support test survives, there is potential for a platform to develop to test 141, as 136.30 supports 137.63 is the near term upside hurdle

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: Neutral
Trading Take-away: Neutral

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