New York Forex Report: Pound Getting Pounded

New York Forex Report: Pound Getting Pounded

New York Forex Report: Yesterday’s BoE meeting saw interest rates left unchanged. Policymakers were more upbeat on the economy, but did surprise, with a decidedly hawkish tone. GBP rallied strongly in response, with GBPUSD trading up to a high of 1.4067, but it failed to hold onto these gains. Interestingly, the trade-weighted post-Brexit highs (around 80 in the BoE’s Sterling Trade-Weighted Index) continue to cap GBP strength, today it has given back all of the BoE gains and then some, trading through 1.38, the slide has been accelerated by EU Brexit negotiator stating that the Brexit transition period is not a given. Globally, equities remain under pressure, but at this stage policymakers have “shrugged off” the declines. Most recently, the Fed’s Dudley suggested that the moves have had “virtually no consequence” on his view of the economic outlook. Yet, financial conditions have seen a sharp contraction and it will be important to monitor whether this tone changes if equities continue to fall.

NORTH AMERICA Minneapolis Fed President Kashkari said it is probably too soon to know if US tax cuts will boost wages and hiring, and probably a long way from rising wages and inflation. Philadelphia Fed President Harker said he is open to raising interest rates in March and recent market volatility has not “appreciably” changed his economic outlook. He still “lightly pencilled” two rate hikes for 2018 and is open to three depending on inflation and financial conditions.

EUROPE Echoing assessment by the European Commission, ECB monthly economic bulletin also confirmed that economic expansion is robust and that inflation will converge towards its inflation target of close to 2%. The risks surrounding the euro area growth outlook are said to be broadly balanced. BOE kept rates unchanged at 0.5% and asset purchase target at £435bn as expected. Although it continued to reiterate that any rate increases will be gradual and will not return to levels seen before the global financial crisis, it hinted that rate hikes could happen sooner and bigger than expected to prevent risks of overheating, judging that “demand growth is expected to exceed the diminished supply growth”. Odds of a May rate hike rose to 75% from 55% before the announcement. In its latest quarterly inflation report released yesterday, the central bank raised its growth and inflation forecasts. The UK economy is expected to grow 1.8% this and next year, with inflation rising to 2.2% in 1Q2020. Unemployment rate is cut to 4.25% from 4.5%

ASIA Survey by Eco Watcher in Japan turned in on the soft side. Both the outlook and current indices unexpectedly pulled back to 52.4 and 49.9 in January as households and manufacturers turned less optimistic on outlook in the next 2-3 months, overshadowing improved optimism among businesses and non-manufacturers. China exports staged a surprised pick-up, increasing 11.1% YoY in Jan, while imports jumped more than three times faster than expected by 36.9% YoY, skewed by the Lunar New Year seasonality. Trade surplus narrowed substantially to $20.3bn as a result. Faster expansion in exports was driven by hefty double-digit growth to Hong Kong, South Korea, Taiwan and ASEAN, reinforced by sustained growth to the US. Growth will likely normalise post-seasonal swings and only then we will be able to get a clearer picture on the state of health of the China economy going into 2018.

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

Technical: 1-3 Day View – Daily close below 1.2290 concerns bullish bias delaying the 1.2635 target, a 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): Neutral – 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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