New York Forex Report: Trade Tensions See Safe-havens Shine

New York Forex Report: Trade Tensions See Safe-havens Shine

New York Forex Report: Risk aversion appears to be dominating as market participants consider the implications of an escalation in trade tensions between the U.S. and China. Safe havens JPY and gold are outperforming along with CHF. Growth sensitive commodity currencies are underperforming. Developed country bond yields are down and global equity indices are trading close to flat. Iron ore and copper are weak, while gold and oil are unchanged. Tuesday’s U.S. release calendar is limited to the Richmond Fed manufacturing activity index. The Senate holds a confirmation hearing for Fed BoG nominee Marvin Goodfriend and Evans (non-voting dove) is speaking after the New York close.

NORTH AMERICA US Chicago Fed national activity index increased to 0.27 in Dec from a downwardly revised of 0.11 in Nov beating the market expectation of 0.22. The increase was attributed to production related indicators (Dec 0.25 vs Nov -0.02), sales, orders and inventories (Dec 0.08 vs Nov 0.04), suggesting that economic activity is trending above long-term trend.

EUROPE Germany’s SPD has voted to proceed with coalition negotiations with Merkel’s CDU and talks are set to begin Tuesday. ECB risk is elevated heading into Thursday’s meeting as market participants assess policymakers’ recent comments pushing back on expectations for near-term adjustments to guidance. ECB VP Constancio, France’s Villeroy, and Austria’s Nowotny have also expressed concerns about the exchange rate. Yield spreads remain bearish and extended, with the Germany-U.S. 2Y testing record lows beyond –265bpts. Short-term risk reversals are drifting lower, and Friday’s CFTC data showed a sizeable $3.1bn build in EUR gross shorts in the week ended January 16. Gross longs also climbed $2.9bn to a fresh record high, dragging the net long down modestly from the prior week’s $21.6bn record. The GBP out performance at the start of the year took many by surprise not the least given that it was not accompanied by an improvement in the UK data or a significant abatement of the Brexit-related uncertainty. The brightening up of the pound sentiment seems to be reflected in positioning data that suggests that sterling longs have hit their highest level in more than three years.

ASIA Despite little change in the BoJ’s rhetoric, the JPY was the strongest performer in the Asian session. Investors read headlines that indicated the BoJ currently sees inflation expectations as having stabilised vs previously declining and sold JPY crosses believing the BoJ was shifting its policy stance. The BoJ’s other rhetoric and economic forecasts, however, suggest the Board has not significantly changed its view and so most JPY crosses spent the rest of the session grinding back higher.

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

Technical: 1-3 Day View – 1.2276 swing objective achieved anticipate profit taking and consolidation on a test above 1.23 as 1.21 survives on a closing basis, 1.2635 descending trendline from all time highs becomes the upside magnet

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 1.16 neutralises bullish objectives opening a test of 1.14
Retail Sentiment: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – 1.40 achieved, a daily close above here opens 1.45, near term support is sited at 1.38

1-3 Week View – 1.3836 achieved as 1.35 supports 1.45 becomes the next upside objective, only a close back below 1.30 would jeopardise the bullish advance.
Retail Sentiment: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – Anticipated retest of pivotal 110.80/60 underway a failure here opens a move to 109.85 next, near term resistance is sited 111.50

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): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 136 the primary upside objective is achieved expect 136.70/137 to cap advance on initial test, pivotal 133.30 support test survives as it does there is potential for a platform to develop to test 141, a failure to recapture current cycle highs in the next couple of sessions may see a broader correction before higher

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: Bearish
Trading Take-away: Long

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