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wtorek, styczeń 16, 2018

Analysts at Brown Brothers Harriman explained that there is nothing quite like a falling dollar to spur take of the erosion of the greenback's reserve

Analysts at Brown Brothers Harriman explained that there is nothing quite like a falling dollar to spur take of the erosion of the greenback's reserve status.  Key Quotes:"There has been talk for several months that China is preparing in yuan-denominated oil contract (with an embedded gold option).  It has not been launched yet, but some observers see it as a blow to the dollar's role.    We are skeptical.  In the mid-1970s, when OPEC agreed to use the dollar as the benchmark for setting prices, it may have been significant.  However, we argue that the liberalization of the capital markets has changed this assessment.  The key to the dollar's reserve role is not that most commodities are priced in dollars or that trade, even when the US is not a party, is often conducted in US dollar.  The key is the deep and liquid bond market.   For various reasons, countries have chosen to build reserves.  Frequently, the reserve accumulation is a consequence of a country's currency and trade policies.    Since the 1997-1998 Asian Financial Crisis, some countries may have chosen to build reserves as a type of self-insurance to avoid having to go to the IMF.  Also as trade flows and capital flows increase, some countries built their reserves.   Following the decision to hold or build reserves, the question arises as to what currencies to hold.   It is not so much which currencies to hold, as there is a handful of currencies that are recognized by the IMF.  It is a more a question of allocation.  After a certain level, the more reserves a country has the fewer choices it has.   Reserves are highly concentrated in dollars and euros, which together account for nearly 85% of global reserves (whose allocation has been reported).  The ownership of reserves is also concentrated.  Two countries, for example, China and Japan, account for nearly 40% of the $11.3 trillion value of global reserves (as of the end of September 2017, the latest authoritative IMF data).  While many central banks keep some reserve liquid, the bulk of the reserves are invested in interest bearing securities and a market.     If a country has a few hundred billion dollars or less in reserves, there is plenty of ways to achieve diversification.  If one has accumulated a trillion dollars or reserves like Japan, or more than three trillion like China, the ability to diversify is more constrained.  China may feel somewhat trapped because the US Treasury market is the only market large enough to absorb its massive reserves.  However, the trap is really in accumulating so many reserves in the first place.   Yesterday, the Bundesbank, quickly followed by the central bank of France, acknowledged that they had purchased yuan for reserves.  The market seemed surprised and seemingly used it as an excuse to sell dollars. There was no need for surprise. The ECB announced in the middle of last year that it had bought about 500 mln euros of yuan for reserves.  Once the ECB bought some yuan for reserves, it followed that some of the national central banks would do the same.  The Bundesbank admitted it was following the ECB. It also noted that other national central banks in the Eurosystem had also bought yuan.   Moreover, once the yuan was included in the SDR, it seems to change the issue at hand from including yuan to how much yuan to hold.  The dollar value of the yuan in reserves as of the end of last September was $107.94 bln from $99.65 bln at the end of Q2 17.  At the end of 2016, when the IMF first broke out the yuan reserves, it estimated them at $90.78 bln.   The yuan accounted for a little more than 1% of global reserves whose allocation has been declared, and some of the dollar's value of yuan reserves is a function of the yuan's 4.2% appreciation against the dollar in the first three quarters of 2017. China's shares of reserves are smaller than the Australian dollar and Canadian dollar (1.8% and 2.0% respectively).  The largest reserve holder in the world, China, cannot put its own currency in its reserves.   While some observers get excited about the demise of the dollar and rise of the yuan, Chinese officials themselves seem considerably more circumspect. The Deputy Governor of the PBOC, Yin Yang, was quoted acknowledging that it will take a long time for the Chinese yuan to be a major reserve currency.  China takes a strategic view.   China's role in the world economy is larger than its role as a reserve asset.  But this is not unique to China. Germany is the world's fourth largest economy and the world's largest exporter, but the euro's share of reserves is less than 1/3 of the dollar's share. Or consider that Japan is the world's third largest economy and yen reserves account for near 4.5% of global reserves, just ahead of sterling's share.   Some observers complain that the dollar's share is greater than the US role in the world economy.   While that may be the case, there are many countries that tie their currency to the dollar and the dollar's share of reserves is more in line with this dollar-bloc, of which China has not completely broken with, according to many."

United States 6-Month Bill Auction increased to 1.6% from previous 1.575%

United States 3-Month Bill Auction remains unchanged at 1.43%

WTI has taken hit on the dollar's reprieve that is broadly firmer against the majors in the FX space as the US returns from holidays.  WTI crude was

WTI has taken hit on the dollar's reprieve that is broadly firmer against the majors in the FX space as the US returns from holidays.  WTI crude was up over +0.3% to US$64.69bbl yesterday, the highest in over two years. Looking around, the Loonie is flexing its muscles while US stocks are consolidating after reaching fresh all-time highs with the DJIA through 26,000 for the first time and the S&P getting through 2,800.  Markets are positioning on the bid within a risk-on environment, USD/JPY started to stabilise overnight with a bounce from in the 110.30's with a look in at the 111 handle while the BOJ's Kuroda reiterated his commitment to continue to pursue policies that will push inflation toward the 2% target. Dollar Index consolidates modest daily gains, remains near 3-year lows As a whole, commodity prices are mostly lower while US yields in the 10-yrs have picked up to 2.55% and the DXY made a high of 90.82, albeit currently back down to 90.64 at the time of writing and enabling the 100-H SMA in WTI to play out its supporting role yet again.  Markets, in the meantime, await more US data to come this week and indeed, the Energy Information Administration data on U.S. petroleum supplies and products that will be released a day later than usual due to the MLK holiday yesterday. The previous report showed a big dip in US output. The data will come on Thursday. after the American Petroleum Institute data that will release its own figures late Wednesday. However, the foundation to the bid comes in the commitment to output cuts from the Organization of the Petroleum Exporting Countries and others such as Russia. WTI levelsThe resistances are aligned at 64.69 (3-year highs) ahead of $ $65 and $ 65.50 (psychological level). On the downside, supports are located at $64 (key support), $63.75, (100-H SMA), $63.50 (psychological levels) and $63.29 (10-DMA). Hourly RSI is holding above negative territory and neutral although 4-hr and daily RSI is correcting lower from overbought territories.

"The New York Fed’s Center for Microeconomic Data today released the December 2017 Survey of Consumer Expectations, which shows an increase in short-

"The New York Fed’s Center for Microeconomic Data today released the December 2017 Survey of Consumer Expectations, which shows an increase in short- and medium-term inflation expectations. Expectations about income and spending growth decreased, but expectations about household financial situations and credit availability improved," the Federal Reserve Bank of New York announced on Tuesday. Key quotesMedian inflation expectations at the three-year horizon increased from 2.8% in November to 2.9% in December, while at the one-year horizon they rose from 2.6% to 2.8%.  The median one-year-ahead expected gasoline price change decreased from 4.3% in November to 4.1% in December. Median one-year-ahead earnings growth expectations continued to increase, from 2.6% in November to 2.7% in December, a level last reached in November 2014.  Mean unemployment expectations dipped 0.2 percentage points to 33.5% in December, the lowest level since December 2014. Median expected household income growth decreased 0.2 percentage points in December, to 2.8%, but remained in line with the trailing 12-month average of 2.7%.

The US dollar is consolidating modest gains on Tuesday but is lost momentum during the last hours and retreated. It is rising after falling sharply du

Greenback rises modestly, but bearish bias remains intact.  DXY up after 4-day slide still faces downside pressure.  The US dollar is consolidating modest gains on Tuesday but is lost momentum during the last hours and retreated. It is rising after falling sharply during four days in-a-row. The decline of the US dollar is taking a pause. So far no clear signals of a stronger recovery have emerged. The US Dollar Index is up 0.15% today, after losing more than 2% over the previous four trading days. Yesterday it bottomed at 90.27, the lowest since Jan 2, 2015.  Since December 13, the DXY decline 4.25%. According to Simon Derrick, Chief Currency Strategist at BNY Mellon, the key factor driving weakness “has likely been concerns that the tax bill will not pay for itself via higher growth.” Rising Fed rate hike expectation among market participants failed to offer support to the US dollar offset by other central banks in the world moving its policy bias toward tightening. Technical levels As of writing, DXY was trading at 90.60, consolidating near the lowest levels in three years but so far avoiding more slides. The trend continues to favor the downside. Immediate support is seen at 90.40 (daily low), followed by 90.27 (Jan 15 low) and 90.00 (psychological). On the upside, immediate resistance might lie at 90.80 (Jan 16 high), 91.45 and 91.75/80.
 

After dropping to a fresh session low at 0.7937, the AUD/USD pair started to retrace its daily losses and was last seen trading at 0.7955, where it wa

DXY recovery loses momentum in the NA session. AUD/USD trades in a 40-pip range. Home loans data from Australia coming up next. After dropping to a fresh session low at 0.7937, the AUD/USD pair started to retrace its daily losses and was last seen trading at 0.7955, where it was down only 10 pips on the day. The pair on Tuesday came under a bearish pressure with the greenback finally gathering some strength against its rivals. After recording heavy losses in the last four trading days, the US Dollar Index is looking to close the day higher on Tuesday. Today's technical recovery lifted the DXY to a daily high at 90.58 earlier in the session. However, with the 10-year US T-bond yields remaining in the negative territory, the index struggled to extend its gains and was last seen at 90.40, where it was up 0.3% on a daily basis. There won't be any macroeconomic data releases from the U.S. in the remainder of the session and investors will look upon the home loans data from Australia, which is expected to improve to -0.2% from -0.6% in November. Although a positive reading is likely to help the AUD gain traction, the pair could find it tough to stretch higher with technical indicators continue to show overbought conditions.Technical levels to considerThe initial support for the pair is located at 0.7905/0.7900 (Jan. 15 low/psychological level) ahead of 0.7835 (20-DMA) and 0.7760 (200-DMA). On the upside, resistances could be seen at 0.8000 (psychological level), 0.8090 (Sep. 20 high) and 0.8125 (Sep. 8 high).

The NZD/USD pair pushed lower in the early NA session and refreshed its daily low at 0.7261. As of writing, the pair was trading at 0.7265, losing 0.2

GDT Price Index rises 4.9% in the last auction. DXY extends recovery in the early NA session. The NZD/USD pair pushed lower in the early NA session and refreshed its daily low at 0.7261. As of writing, the pair was trading at 0.7265, losing 0.28% on the day.  The pair's price action on Tuesday continues to be dominated by the positive mood surrounding the greenback. After closing four straight days sharply lower, the US Dollar Index finally took a breather on Tuesday. The DXY, which plummeted to a three-year low near the 90 mark on Monday, is now at 90.55, up 0.45% on the day. In the meantime, although the headline general business conditions index of the Empire State Manufacturing Survey eased to 17.7, the fact that labor market conditions, new orders and selling prices sub-indexes didn't allow the report to have a negative impact on the USD. On the other hand, following the previous 4.2% increase, the GDT Price Index rose by 4.9% at the end of today's auction but failed to help the kiwi retraces its losses against the buck. Technical outlookThe pair could encounter the first technical support at 0.7225 (Jan. 12 low) ahead of 0.7150 (200-DMA) and 0.7075 (Jan. 4 low). On the upside, resistances align at 0.7315 (Jan. 15 high), 0.7415 (Sep. 20 high) and 0.7500 (psychological level).

US equity markets witnessed a strong opening on Tuesday, with the Dow Jones Industrial Average surging over 200-points to hit fresh records beyond the

US equity markets witnessed a strong opening on Tuesday, with the Dow Jones Industrial Average surging over 200-points to hit fresh records beyond the 26K mark. Along with the blue-chip index, the other two major indices - S&P 500 and tech-heavy Nasdaq Composite, also extended their winning streak and continued with their recent string of records. During the opening hour of trade, all the three major indices were trading with gains of anywhere between 0.70%-1.0%. The fourth-quarter earnings season kicks into high gear and hopes for strong quarterly earnings continued bolstering investors' optimism since the start of 2018. This coupled with a steep cut in corporate taxes and expectations over a solid global economic growth remained supportive of the strong bullish run-up in equity markets. On the economic data front, the Empire State Manufacturing Index slipped to 17.7 in January, down from an upwardly revised 19.6 in December, but did little to dampen the prevalent strong bullish sentiment.
 

New Zealand GDT Price Index increased to 4.9% from previous 2.2%

Below are the key headlines, via LiveSquawk, from the European Central Bank (ECB) Governing Council member and Bank of France (BOF) Head Villeroy's in

Below are the key headlines, via LiveSquawk, from the European Central Bank (ECB) Governing Council member and Bank of France (BOF) Head Villeroy's interview with the German newspaper Boersen Zeitung. Confident ECB can manage ‘smooth exit’ from ultra-loose monpol. Eurozone still needs accommodative monpol, can gradually reduce intensity of monpol support. Recent EUR strength is source of uncertainty, must monitor because of possible downward effects on imported prices.

"Given the aforementioned risks above, the near-term prospects have shifted lower (again) for USDJPY as the move through 110.80/111.00 should confirm

"Given the aforementioned risks above, the near-term prospects have shifted lower (again) for USDJPY as the move through 110.80/111.00 should confirm the completion of a head and shoulders formation established in Sep/Oct last year," TD Securities analysts argue.Key quotesWhile USD positioning has been rather skewed on the short side, this has been mostly concentrated against the EUR, so we think there is room for USD shorts to be expressed against the JPY. Further, USDJPY  and US 10yr yields has diverged but insofar as US shutdown risk looms, we suspect that lower yields may have to ’catch-up’. We have been short USDJPY and target a move 107. We view 110.80/111.00 as key resistance follow by 111.65 as another attractive fade point. 

   •  Fails to gain traction despite goodish USD rebound.    •  Subdued oil prices offset by weaker US bond yields.    •  Wednesday’s BOC announceme

   •  Fails to gain traction despite goodish USD rebound.
   •  Subdued oil prices offset by weaker US bond yields.
   •  Wednesday’s BOC announcement holds the key. The USD/CAD pair erased early modest recovery gains to mid-1.2400s and has now drifted into negative territory for the fourth consecutive session. Despite a goodish US Dollar rebound, the pair struggled to gain any strong traction and dropped to fresh session lows in the last minute. The latest leg of downslide during the early NA session followed today's disappointing release of the US Empire State Manufacturing Index. Meanwhile, a softer tone around crude oil prices, which tends to dent demand for the commodity-linked Loonie, was largely negated by weaker US Treasury bond yields and did little to lend any support to the major. It would be interesting to see if continues to find some support near the 1.2400 handle as investors start repositioning themselves for the next big event risk - BOC monetary policy decision, due to be announced on Wednesday. Technical levels to watchOn a convincing break below the 1.2400 handle, the pair is likely to accelerate the fall towards 1.2355 level (monthly low) before eventually dropping to the 1.2300 round figure mark. Alternatively, a sustained move beyond mid-1.2400s might now trigger a short-covering bounce and lift the pair back beyond the key 1.25 psychological mark en-route its next hurdle near the 1.2545 region.
 

After advancing to a fresh four-month high at $1344 on Monday, the XAU/USD pair reversed course on Tuesday and erased yesterday's gains. As of writing

DXY stages a technical recovery following the 4-day drop. Positive market sentiment weighs demand for safe-havens. After advancing to a fresh four-month high at $1344 on Monday, the XAU/USD pair reversed course on Tuesday and erased yesterday's gains. As of writing, the pair was trading at $1332, losing $7, or 0.55%. Following four straight negative daily closings, the US Dollar Index gained traction on Tuesday with trading volume returning to normal levels after the long weekend in the United States. At the moment, the DXY is up 0.45% on the day at 90.53. However, today's recovery seems to be a technical correction with a lack of fundamental catalysts supporting that move. In fact, today's data from the U.S. showed that the Empire State Manufacturing Index eased to 17.7 in January and fell short of the market expectation of 18. Meanwhile, the solid performance of global equity indexes doesn't allow the traditional safe-haven gold to show any resilience against the buck. The Nikkei 225 closed the day 1% higher while German DAX was up 0.9% as of writing. In case Wall Street starts the day on a positive note, we could see the bearish pressure building up in the next hours.Technical outlookThe pair could face the first technical support at $1322 (Jan. 12 low) ahead of $1308 (Jan. 10 low) and $1300 (psychological level). On the upside, resistances align at $1344/45 (Sep. 5 high/Jan. 15 high), $1350 (Sep. 7 high) and $1358 (Sep. 8 high). 

   •  US data does little to provide any fresh impetus.    •  Risk-on mood supportive of the up-move. The USD/JPY pair held on to its modest recover

   •  US data does little to provide any fresh impetus.
   •  Risk-on mood supportive of the up-move. The USD/JPY pair held on to its modest recovery gains and had a rather muted reaction to the US economic data. The pair moved little and remained near the top end of a narrow trading range held since the early European session, around 110.70-75 band, after the US Empire State Manufacturing Index came in at 17.7 for January.  The reading was below consensus estimates pointing to a reading of 18.0 but, to some extent, was negated by an upward revision for previous month's print, which now stands at 19.6 as against 18.0 reported earlier.  The data did little to provide any fresh impetus to US Dollar, albeit helped to preserve daily gains, just below mid-90.00s and offset weaker US Treasury bond yields.  Meanwhile, the global risk-on trade continued weighing on the Japanese Yen's safe-haven appeal and remained supportive of the pair's mildly positive tone through the early NA session.  With the only scheduled US economic data out of the way, broader market risk sentiment and the USD price dynamics might continue to act as key determinants of the pair's momentum on Tuesday.Technical outlookMohammed Isah, Technical Strategist FXTechstrategy writes: "The pair closed further lower on Monday opening the door for more weakness. This view remains valid despite its present price hesitation. On the downside, support lies at the 110.00 level where a break if seen will aim at the 109.50 level. A cut through here will turn focus to the 109.00 level and possibly lower towards the 108.50 level. On the upside, resistance resides at the 111.00 level. Further out, we envisage a possible move towards the 111.50 level. Further out, resistance resides at the 112.00 level with a turn above here aiming at the 112.50 level. On the whole, USDJPY faces further bearishness."
 

"If there was any doubt for fencesitters, the past few weeks has been a strong indictment of the USDs bearish prospects," TD Securities analysts expla

"If there was any doubt for fencesitters, the past few weeks has been a strong indictment of the USDs bearish prospects," TD Securities analysts explain.Key quotesData surprises have pressed to new cyclical highs (helped by last Friday’s better CPI report) and the market is pricing in almost 3 Fed hikes this year, including a near certainty of a move in March (now our base case), yet the USD still can’t rally. The fact that the USD couldn’t sustain a move higher beyond the knee-jerk reaction of stronger CPI is very telling we think, particularly as the Fed’s most pressing concern has been the persistence of soft inflation. Despite the positive data run, we think we are precisely in the cycle where what’s good for the US is good for the rest of the world. Even though USD bearish positioning looks skewed and technical measures even oversold, there isn’t a compelling reason to lean the other way just yet. We acknowledge there will be fits and bouts of a relief rally and the catalyst for this will have to come from EUR profit taking as coalition talks in Germany may encounter stumbling blocks before the SPD vote on Sunday on whether to form another grand coalition with Merkel’s CDU party. Unless talks break down, we think a EUR dip should be somewhat shallow, with 1.22 as initial support followed by 1.2150.  Below this, 1.2090 should prove to be attractive for dip buyers. Meanwhile, the US is flirting with government shutdown risk (January 19th is the deadline), and previous cases of such an event has seen the USD weaken. Given the politically charged climate, we suspect this is a probable outcome. 

"Business activity continued to grow at a solid clip in New York State, according to firms responding to the January 2018 Empire State Manufacturing S

"Business activity continued to grow at a solid clip in New York State, according to firms responding to the January 2018 Empire State Manufacturing Survey," the Federal Reserve Bank of New York announced on Tuesday.Key quotesThe headline general business conditions index, at 17.7, was little changed from last month’s level. The new orders index and the shipments index both showed ongoing growth, although at a slower pace than in December. Unfilled orders and delivery times increased slightly, and inventory levels were higher. Labor market conditions pointed to a modest increase in employment and steady workweeks. Both input prices and selling prices increased at a faster pace than last month. Firms remained very optimistic about future business conditions, and capital spending plans were robust.

United States NY Empire State Manufacturing Index registered at 17.7, below expectations (18) in January

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) offered a brief preview for the upcoming release of the final EZ CPI print on Wed

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) offered a brief preview for the upcoming release of the final EZ CPI print on Wednesday. Key quotes:“The euro rose for the fourth session yesterday and approached $1.23.  Today, the pullback took place mostly in the European morning.  Initial support is seen in the $1.2180 area.  News from the eurozone is light.  Germany and Italy confirmed their December inflation readings ahead of the aggregate report tomorrow.” “Much of the discussion of the ECB stance, including the record from the December meeting that the market read so hawkishly, was before the preliminary release of the December CPI.  Recall that it was softer than expected.  The headline eased to 1.4% from 1.5%, but it was the flat core rate at 0.9% that was most disappointing.  Recall that the core measure bottomed at 0.6%.  The core rate jumped to 1.2% in early Q2 17 and returned to it in early Q3, but has returned to the middle of its four-year range.”

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) looks into today’s mixed UK inflation figures and provides a brief outlook for th

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) looks into today’s mixed UK inflation figures and provides a brief outlook for the GBP/USD pair. Key quotes:“The UK reported December prices today.  Headline CPI was in line with expectations, rising 0.4% on the month, which saw the first decline in the headline rate (to 3.0% from 3.1%) in six months.  The core rate eased a little more than expected.  The 2.5% y/y rate is the lowest in five months.  Service inflation also fell to 2.5%, which is a nine-month low.” “Given the re-weighting of airfare, it may be premature to read too much into today's report.  Many, including ourselves, continue to look for the past decline of sterling to drop out of the comparisons, which would point to a general easing of price pressures.  Also, a favorable dynamic was apparent in producer prices, where input prices slipped more than expected while output prices were firmer than expected, which speaks to margins.” “Separately, news reports suggest that the EU has toughened its demands for a transition deal.  The negotiators were given more specific terms that will complicate the talks.  The UK is being asked to adhere to EU rules on immigration and rights of EU citizens to live in the UK during the transition, as well as agree to no new trade agreements and no renegotiating fishing rights during the transition.  In essence, these latest conditions appear to make more concrete what a "standstill" transition means.” “Four sessions ago, sterling was fraying support seen near $1.35.  Yesterday, it saw $1.3820.   Recall that $1.3805 is the 61.8% retracement of sterling's drop following the 2016 referendum, and $1.3885 is the 38.2% retracement of the decline since the 2014 peak a little shy of $1.72.  Sterling has slipped to nearly $1.3740 in the European morning.  Support is seen in the $1.3680-$1.3700.”

"Despite the NAFTA risks that lie beyond, we do not think it will be enough to derail the Bank to hike 25bps tomorrow," TD Securities analysts note.

"Despite the NAFTA risks that lie beyond, we do not think it will be enough to derail the Bank to hike 25bps tomorrow," TD Securities analysts note.Key quotesWe note however that the NAFTA tape bombs have introduced more two-way risk for CAD around the decision, we think trade concerns lead to more cautious messaging from the Governor, suggesting that a knee-jerk reaction towards CAD strength should be faded. Further, we doubt that Poloz will look too kindly to roughly 3 hikes priced into the curve (by October) at the moment. We think the market pricing in as much cumulative tightening as the Fed NAFTA risk and the debt overhang will be motivators for a more cautious profile. As such, we see value in playing CAD on the short-side with NOK and EUR as preferred pairs.

   •  USD rebound losing steam amid weaker US bond yields.    •  Investors looked past softer UK core CPI print.     •  US manufacturing data eyed f

   •  USD rebound losing steam amid weaker US bond yields.
   •  Investors looked past softer UK core CPI print. 
   •  US manufacturing data eyed for fresh impetus. The GBP/USD pair stalled its post-UK CPI corrective slide near the 1.3740 region and has managed to rebound around 20-pips from session lows. Today's in-line headline UK CPI print and a slightly softer core CPI numbers, which eased little more than expected prompted some selling and dragged the pair below its Asian session consolidation phase.  This coupled with a goodish pickup in the US Dollar demand further collaborated to the pair's retracement slide from levels beyond the 1.3800 handle, fresh post-Brexit highs touched in the previous session. Further downside, however, remained cushioned amid weaker tone surrounding the US Treasury bond yields, which failed to assist the USD to build on its modest recovery bounce from a three-year trough near the 90.00 handle. Currently trading around the 1.3760 region, traders now look forward to the US economic docket, featuring the only release of Empire State Manufacturing Index, for some fresh impetus. Technical levels to watchAny meaningful retracement is likely to find support near the 1.3730-25 region and is closely followed by the 1.3700 handle. On the upside, 1.3790-1.3800 region now seems to have emerged as an immediate resistance, above which the pair could surpass 1.3820 level (yesterday's high) and aim towards reclaiming the 1.3900 handle.
 

The UK PM Theresa May's spokesman was out on the wires in the last minute, saying that Britain will be leaving EU. The statement comes after the Euro

The UK PM Theresa May's spokesman was out on the wires in the last minute, saying that Britain will be leaving EU. The statement comes after the European (EU) Council President Donald Tusk's comments earlier that the UK can have a "change of heart" on Brexit and EU still open to UK staying in the EU.

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) is out with their daily 'CurrencyView' report and offered a near-term outlook for

Global Currency Strategy Team at Brown Brothers Harriman & Co. (BBH) is out with their daily 'CurrencyView' report and offered a near-term outlook for the US Dollar, which was trading broadly firmer against the majors as the US returns from holiday. Key quotes:“After extending its recent slide yesterday while the US markets were on holiday, the dollar is firmer against all the major currencies and most of the emerging market currencies.  There does not seem to be any macroeconomic developments behind the dollar's stabilization, and the gains are quite minor, suggesting a pause in the downtrend rather than a reversal at this juncture.  That said the extent and duration of what appears to be little more than a technical adjustment is the key to the near-term outlook.”

Over the past few days GBP/USD has crept back to its strongest levels since June 2016, the Brexit referendum day. Jane Foley, Senior FX Strategist at

Over the past few days GBP/USD has crept back to its strongest levels since June 2016, the Brexit referendum day. Jane Foley, Senior FX Strategist at RaboResearch, highlights some of the key factors behind the improvement in sentiment surrounding the British Pound.Key quotes:“A key turning point in the outlook for the pound was September. This brought a surge in market expectations about the prospect of a rate hike from the BoE (which followed in November). The market is expecting that the BoE will hike rates again this year.” “Economic growth has also likely being lending GBP protection. The world economy is performing well and the Eurozone was a star performer in 2017. This will float all boats. Although the Bank of England has proclaimed investment in the UK as being weaker than it would be if political uncertainty was not a significant feature, the UK economy managed to grow by a very respectable 0.4% q/q in Q3 (this compares with 0.8% q/q for Germany). Generally speaking, strong growth can help counter some of the impact of political uncertainty on asset markets and reduce volatility.” “Sterling therefore appears better positioned to face the uncertainty that the forthcoming EU/UK trade negotiations will bring. These are not due to officially start until March, although preparations have already begun.”

Mikael Olai Milhøj, Senior Analyst at Danske Bank has come out with a research report and expects the Fed to raise interest rates in March, and three

Mikael Olai Milhøj, Senior Analyst at Danske Bank has come out with a research report and expects the Fed to raise interest rates in March, and three times in 2018.
 
Key quotes: “Based on the higher-than-expected inflation print on Friday and the hawkish comments from influential NY Fed president William C. Dudley, we change our call and now expect the Fed to deliver the next hike at the March meeting. Markets have now priced in an 85% probability of a March hike and given that markets are calm and growth remains strong, it seems like a good time to hike.” “However, do not necessarily expect the Fed to change its communication at the upcoming meeting on 31 January, as this is one of the small meetings without updated projections and a press conference. The accompanying statement usually does not change much from meeting to meeting. More important are the individual speeches.” “We also change our call and now expect three hikes (previously two) with the second hike likely in June and the third one in December (obviously it is a bit difficult to distribute three hikes throughout the year, as the Fed so far has been reluctant to move on one of the smaller meetings). The three hikes are in line with the Fed’s dots and consensus among economists. Markets have priced in a 50/50 probability of another Fed hike in June.” “While we expect the Fed to hike three times, we maintain our view that inflation pressure will remain subdued, although it is likely to increase from current low levels, and hence we think it is unlikely that the Fed is going to hike more than it is currently signalling (three hikes). However, the Fed is still tightening, as the FOMC members have a strong belief in the Phillips curve theory suggesting that the tighter labour market will eventually push wage growth higher, and also they have a tendency to put more weight on labour market data than inflation.” “It is worth noting that the discussions among the FOMC members on why inflation has run below the 2% target persistently are intensifying and inflation will remain an important market theme this year.”

   •  German political news prompts some profit-taking.    •  ECB headlines add to the downward pressure.      •  Goodish USD rebound further contri

   •  German political news prompts some profit-taking.
   •  ECB headlines add to the downward pressure.  
   •  Goodish USD rebound further contributes to the weaker tone. The EUR/USD pair remained under some selling pressure through the mid-European session and eroded a major part of previous session's strong up-move to 3-year tops.  The pair stalled its strong bullish momentum near the 1.2300 handle and the initial leg of corrective slide on Tuesday was triggered by the latest German political news, wherein Berlin's SPD section has rejected the proposal of coalition talks to form a Grand Coalition in Germany.  The downfall accelerated further in wake of the news headlines, via Reuters, that the ECB is unlikely to drop the bond-buying pledge until inflation hits the target next week. Meanwhile, a strong US Dollar recovery from a three-year trough, around the 90.00 handle touched in the previous session further collaborated to the pair's retracement slide to 1.2200 handle.   The pair, however, has managed to bounce off lows and is currently placed around the 1.2230-35 region as traders now look forward to the only scheduled release of Empire State Manufacturing Index from today's US economic docket. The key focus, however, would be on the final EZ CPI print, due for release during the European session on Wednesday. Technical levels to watchOn a sustained weakness below the 1.2200-1.2190 region, the corrective slide could get extended towards 1.2125 intermediate support en-route the 1.2100 handle. On the upside, mid-1.2200s now seems to act as an immediate hurdle, above which the pair is likely to make a fresh attempt towards conquering the 1.2300 handle.

Bitcoin, the most dominantly traded digital currency, resumed its recent selling spiral and lost almost 18% on the day to a hit a four-week low at 10,

Bitcoin, the most dominantly traded digital currency, resumed its recent selling spiral and lost almost 18% on the day to a hit a four-week low at 10,892, before recovering some ground to now trade around 11,590 levels. The sell-off puts Bitcoin almost 40% down from its Dec peaks near the $ 18k mark. The spot tracked the broad-based sell-off across the cryptocurrencies’ space as the regulatory crackdown in South Korea and China is seen gathering steam, with the South’s Finance Minister saying that banning trading in cryptocurrencies was still an option. Additionally, the Chinese efforts to outline a centralized trading of virtual currencies also underscores the crackdown fears. Mati Greenspan, the Senior Market Analyst at eToro, told CNBC: “The pullback seems to be coming from a lack of buyers in Asia. Japan and South Korea usually dominate this market but over the last few days, the volumes have been dropping steadily. This morning the combined volumes from these two countries dropped below 30 percent."    All the top cryptocurrencies by market capitalization are in a sea of red today, with Ethereum down 21%, Ripple down 26.50% and Bitcoin cash losing 21% so far this Tuesday, according to CoinMarketCap data. Meanwhile, the cryptocurrency market cap fell dramatically by 20% to $561.92 billion, with Bitcoin’s share increased slightly to 35% of global cryptocurrency trading.

Ireland HICP (MoM): -0.1% (December)

Ireland Consumer Price Index (MoM): -0.1% (December) vs -0.2%

Ireland Consumer Price Index (YoY) fell from previous 0.5% to 0.4% in December

Ireland HICP (YoY) unchanged at 0.5% in December

Reuters quoted an unnamed source with knowledge of the matter, citing that the ECB is unlikely to drop the pledge to QE program until inflation hits t

Reuters quoted an unnamed source with knowledge of the matter, citing that the ECB is unlikely to drop the pledge to QE program until inflation hits the target next week.

The Bank of England’s (BOE) top banking and insurance supervisor, Sam Woods, was on the wires last minutes, via FT, testifying before the Treasury Sel

The Bank of England’s (BOE) top banking and insurance supervisor, Sam Woods, was on the wires last minutes, via FT, testifying before the Treasury Select Committee (TSC), with the key quotes found below. "If we get to end of Q1 and there is no Brexit transition agreement, then firms will step up contingency planning." "Direct exposures to financial institutions from Carillion’s liquidation is entirely manageable." While the UK philosophy around banks and insurers was that banks serving retail customers should be locally based and have local subsidiaries but wholesale banking should be as cross-border as possible, European counterparts did not share that philosophy. “Our colleagues don’t have the same mindset. That is going to be a point of tension.”

WTI (oil futures on NYMEX) is seen replicating yesterday’s price-action so far this Tuesday, as it extends it corrective slide from three-year tops of

Will it hold $ 64 amid broad USD rebound? Goldman Sachs’ comments support.WTI (oil futures on NYMEX) is seen replicating yesterday’s price-action so far this Tuesday, as it extends it corrective slide from three-year tops of $ 64.89 reached in the US last session.WTI breaches 5-DMA support at 64.27The barrel of WTI remains better offered, accelerating its declines over the last hours, as broad-based US dollar rebound gained traction amid a sell-off in Treasury yields and profit-taking. The USD index jumps +0.36% to flirt with daily tops of 90.47, having found solid support just ahead of the 90 handle. A stronger US dollar makes the USD-denominated oil more expensive for the foreign buyers. Meanwhile, the buyers continue to lurk ahead of the $ 64 threshold, as the sentiment around the black gold remains underpinned by robust fundamentals, in the wake of the OPEC oil output cuts and a pickup in demand for crude globally, as the global economic outlook improves. More so, oil prices also benefit from a pause in the US oil output surge, alteast for the time being, as icy winter weather in North America has shut down some facilities. Also, the latest comments from Goldman Sachs continue to lend support to the commodity. Markets now eagerly await the US crude inventories reports due later this week for the next push higher in oil prices.  At the time of writing, WTI drops -0.12% to $64.22 while Brent slips -0.57% to $69.64.WTI Technical LevelsThe resistances are aligned at 64.89 (3-year highs) ahead of $ $65 (round number) and $ 65.50 (psychological levels). On the downside, supports are located at $64 (key support), $63.50 (psychological levels) and $63.29 (10-DMA).

Italy Global Trade Balance below forecasts (€5.22B) in November: Actual (€4.83B)

Italy Trade Balance EU down to €0.24B in November from previous €0.666B

Italy Consumer Price Index (MoM) meets forecasts (0.4%) in December

Italy Consumer Price Index (EU Norm) (MoM) meets forecasts (0.3%) in December

Italy Consumer Price Index (EU Norm) (YoY) in line with expectations (1%) in December

Italy Consumer Price Index (YoY) in line with forecasts (0.9%) in December

The EU Parliament’s Chief Brexit Coordinator Guy Verhofstadt was out on the wires last minutes, via Twitter, commenting on the Brexit issue. Key Quot

The EU Parliament’s Chief Brexit Coordinator Guy Verhofstadt was out on the wires last minutes, via Twitter, commenting on the Brexit issue.Key Quotes:“We must formalize the Brexit withdrawal agreement. Besides the Irish issues, our priority is to get citizens’ rights right. Because this is not done yet. We need rock-solid guarantees. The European Parliament won't allow cherry-picking in the Brexit transition. All EU legislation, all EU policies will continue to apply. The only exception is that the UK will no longer be represented in the institutions that decide on legislation & policies. Brexit will conclude with a political declaration defining the future of our relationship. Let's not reinvent the wheel & use article 217 to agree on a UK - EU association agreement.”

   •  UK headline CPI matches consensus estimates.    •  Softer core CPI print prompts some profit-taking.    •  Goodish USD rebound adds to the dow

   •  UK headline CPI matches consensus estimates.
   •  Softer core CPI print prompts some profit-taking.
   •  Goodish USD rebound adds to the downward pressure. The GBP/USD pair retreated farther from post-Brexit highs and refreshed session lows following the release of UK inflation figures.  Currently trading around the 1.3770-65 region, the pair met with some supply after the UK consumer inflation, as measured by headline CPI matched consensus estimates and eased to 3.0% y-o-y rate during December.  Meanwhile, the core CPI (excluding the volatile food, energy, alcohol, and tobacco items) eased more than expected to 2.5% yearly rate and prompted some additional profit taking slide around the major, especially after the latest upsurge of over 350-pips since last Thursday. Adding to this, a goodish pickup in the US Dollar demand further collaborated to the pair's steady retracement slide from levels beyond the 1.3800 handle, touched in the previous session.Technical outlookMario Blascak, European Chief Analyst at FXStreet writes: “The immediate target remains at $1.3850,  representing 61.8% retracement of the post-Brexit slump of GBP/USD from $1.5000 to $1.1950. The technical indicators on the daily chart look exhausted with Slow Stochastics and the Relative Strength index at Overbought territory, setting the stage for the technical correction lower.”
 

The UK consumer prices eased slightly to 3.0% in the month of December on an annualized basis, and came in line with expectations, the Office for Nati

The UK consumer prices eased slightly to 3.0% in the month of December on an annualized basis, and came in line with expectations, the Office for National Statistics (ONS) revealed on Tuesday. While the core inflation gauge softened in Dec, coming in at +2.5 y/y. Markets had predicted the core figures to come in a tad weaker at +2.6%. On monthly basis, the UK inflation figures accelerated slightly, coming in at 0.4% last month, as compared to 0.3% previous while matching expectations.

United Kingdom Core Consumer Price Index (YoY) below expectations (2.6%) in December: Actual (2.5%)

United Kingdom DCLG House Price Index (YoY) registered at 5.1% above expectations (4.2%) in December

United Kingdom Consumer Price Index (YoY) in line with expectations (3%) in December

United Kingdom Producer Price Index - Output (MoM) n.s.a above expectations (0.3%) in December: Actual (0.4%)

United Kingdom Retail Price Index (YoY) came in at 4.1%, above forecasts (3.9%) in December

United Kingdom Producer Price Index - Input (MoM) n.s.a registered at 0.1%, below expectations (0.4%) in December

United Kingdom Retail Price Index (MoM) above forecasts (0.6%) in December: Actual (0.8%)

United Kingdom Producer Price Index - Output (YoY) n.s.a above forecasts (2.9%) in December: Actual (3.3%)

United Kingdom Producer Price Index - Input (YoY) n.s.a below expectations (5.4%) in December: Actual (4.9%)

United Kingdom Consumer Price Index (MoM) meets forecasts (0.4%) in December

United Kingdom PPI Core Output (YoY) n.s.a came in at 2.5%, above expectations (2.3%) in December

United Kingdom PPI Core Output (MoM) n.s.a above forecasts (0.2%) in December: Actual (0.3%)

Danske Bank’s analysts maintain a bullish outlook for the British Pound and forecasts the EUR/GBP cross to depreciate to 0.85 in 12-months.  Key quot

Danske Bank’s analysts maintain a bullish outlook for the British Pound and forecasts the EUR/GBP cross to depreciate to 0.85 in 12-months. Key quotes:“GBP once again kept its stand against the EUR appreciation yesterday while GBP/USD continued higher to a new post-Brexit high. The Brexit risk premium has generally declined over the past weeks driven by renewed negotiation optimism and a general appetite for GBP among investors. While we remain bullish GBP over the medium term (we target EUR/GBP at 0.85 in 12M), we see risks mainly skewed to the upside for EUR/GBP in the short term. Today’s UK CPI data could support EUR/GBP temporarily but we still look for 0.8650-0.90 to hold near term.”

European (EU) Council President Donald Tusk is on the wires now, via Reuters, speaking in France on the Brexit issue. Key Headlines: Need more clari

European (EU) Council President Donald Tusk is on the wires now, via Reuters, speaking in France on the Brexit issue.Key Headlines:Need more clarity on the UK's position on a post-Brexit future. EU27 are united in Brexit negotiations. The hardest part of Brexit talks lie ahead. The UK can have a "change of heart" on Brexit. Still open to UK staying in the EU.

The EUR/USD pair witnessed good two-way price movement so far this Tuesday, in the wake of broad-based US dollar rebound and German political headline

DXY rebound gathers steam. German political fallout weighs. Focus shifts to the US data. The EUR/USD pair witnessed good two-way price movement so far this Tuesday, in the wake of broad-based US dollar rebound and German political headlines. The spot broke its bullish consolidation phase to the downside in early Europe and dropped as low as 1.2216 after the EUR was hit by the reports that the German SPD rejected coalition talks with Merkel’s Conservatives Party. However, the bulls fought back control somewhat, as the German coalition breakdown fears calmed down, having sent the pair pack towards 1.2270 region. But, over the last hour, a fresh buying-wave caught by the US dollar against its main competitors appears to have capped the recovery in the main currency pair, as the bears once again target the 1.22 handle amid a data-light EUR docket. Meanwhile, the sentiment around the major remains underpinned on the back of the recent hawkish ECB-speak while in line with expectations German final CPI data also offer some support to the EUR bulls. There is nothing of note for the pair in the day ahead, except for the second-liner US regional manufacturing index. Hence, attention turns towards the Eurozone final CPI and US industrial figures slated for release tomorrow.  EUR/USD Technical LevelsSlobodan Drvenica, Information & Analysis Manager at Windsor Brokers Ltd: “Firmer bearish signals are required to spark correction and expose initial supports at 1.2206 (Fibo 23.6% of 1.1915/1.2296 upleg) and 1.2187 (yesterday's low). Next significant support lies at 1.2150 (Fibo 38.2%) and corrective action should ideally find footstep here to keep intact pivotal supports at 1.2100 zone (former tops/daily Tenkan-sen). The overall structure is firmly bullish and favors continuation of broader uptrend after consolidative/corrective phase. A sustained break above 1.2300 barrier is needed to signal bullish continuation.” 

   •  A goodish USD rebound helps defend 0.96 handle.    •  CHF further weighed down by the risk-on environment.    •  US manufacturing data eyed fo

   •  A goodish USD rebound helps defend 0.96 handle.
   •  CHF further weighed down by the risk-on environment.
   •  US manufacturing data eyed for trading impetus. The USD/CHF pair held on to its modest recovery gains and is currently placed near the top end of its daily trading range, around mid-0.9600s. A goodish pickup in the US Dollar demand helped the pair to snap four consecutive days of losing streak and recover part of previous session's steep decline to the 0.9600 handle, near four-month lows. The uptick was further supported by the prevalent risk-on environment, which tends to weigh on the Swiss Franc's safe-haven appeal. Moreover, near-term oversold conditions might have prompted bears to take some profits off the table, especially after the recent slump of nearly 250-pips over the past four days, and could also be one of the factors behind the pair's mildly positive tone.  The up-move, however, lacked any strong conviction, or a follow-through momentum amid weaker US Treasury bond yields, which might continue to keep a lid on any meaningful recovery, at least for the time being. Traders would now take cues from the release of Empire State Manufacturing Index, the only scheduled data due from today's relatively lighter US economic docketTechnical levels to watchImmediate support is now pegged near 0.9625 level, below which the pair is likely to head back towards testing the 0.9600 handle before eventually dropping to its next support near the 0.9575-70 region. On the upside, sustained move beyond 0.9675 level is likely to get extended towards the 0.9700 handle en-route 0.9730-35 supply zone.
 

Simon Derrick, Chief Currency Strategist at BNY Mellon says the key factor driving USD weakness has likely been concerns that the tax bill will not pa

Simon Derrick, Chief Currency Strategist at BNY Mellon says the key factor driving USD weakness has likely been concerns that the tax bill will not pay for itself via higher growth.Key quotesWhile it is true that the market remains split about the pace of US rate hikes in 2018, it’s hard to argue that the USD’s poor performance has had anything to do with investor skepticism about the Fed given that 2018 dated Fed funds futures have been declining steadily since early November. It indicates that the key factor driving USD weakness has likely been concerns that the tax bill will not pay for itself via higher growth. A report by the Joint Committee on Taxation published at the start of December argued that the bill would leave the government facing a revenue loss of about USD 1 tn over 10 years. This makes an interesting comparison with the situation in the mid-1980s - when concerns of twin deficits saw the USD index fall 47% (from Feb 1985) over the next 34 months. This provides a useful benchmark to compare against the current USD downtrend. The current trend is just 12 months old and has seen the USD index fall by 12%.

The FX strategy team at TD Securities published their view on the upcoming release of the UK inflation figures for the month of December. Key quotes:

The FX strategy team at TD Securities published their view on the upcoming release of the UK inflation figures for the month of December.Key quotes: “We look for headline CPI to remain unchanged at 3.1% y/y in December, just above the top of the BoE’s target range. The big driver here is likely to be energy prices; we see core CPI slipping from 2.7% to 2.6% y/y in Dec, but with the big jump in crude oil prices into the end of the year, headline CPI will remain well-supported. In the November IR, the BoE had forecast a 2.7% print for Dec CPI, so this is clearly considerably stronger.”

EUR/GBP has had a tough time keeping the gains above 100-day MA in the last three trading sessions. The moving average has proved a tough nut to crack

EUR/GBP bulls need progress soon as 100-day MA plays spoilsport. 10Y German (DE) - UK bond yield spread at a 4-month high. EUR/GBP has had a tough time keeping the gains above 100-day MA in the last three trading sessions. The moving average has proved a tough nut to crack since last November. More importantly, in the recent past, back-to-back failures at the moving average hurdle yielded a pullback. Hence, EUR bulls need progress soon, i.e. the cross needs to close today above the 100-day MA level of 0.8895. Another failure could prove costly as history suggests. That said, the yield differential favors an upside break in the EUR/GBP pair. The difference or the spread between the 10-year German and UK bond yield rose to -0.736; the highest level since mid-September. A week ago the spread stood at -0.825. However, the spread could drop in the GBP positive manner if the UK inflation numbers due today beat estimates.EUR/GBP Technical LevelsCommerzbank Analyst Karen Jones writes, "key near-term resistance is the .9034 October 12, 2017, high. This remains the barrier to the 0.9071/0.9175 61.8% and 78.6% Fibonacci retracements. Below .8808 would retarget the .8697 recent low.”

Comments from PBOC advisor are crossing the wires via Reuters- Not necessary for China to raise benchmark interest rate in the near-term Property

Comments from PBOC advisor are crossing the wires via Reuters- Not necessary for China to raise benchmark interest rate in the near-term Property tax too sensitive, complex, unlikely to be rolled out nationwide in near term. Expects Yuan exchange rate to be relatively stable, no big fluctuations.

Commerzbank Analyst Karen Jones says the short-term trend in EUR/JPY remains bullish, although gains could be capped for now by descending trendline h

Commerzbank Analyst Karen Jones says the short-term trend in EUR/JPY remains bullish, although gains could be capped for now by descending trendline hurdle of 137.18.Key pointsShort-Term Trend (1-3 weeks): Positive above uptrend, should remain capped for now by 137.18 downtrend. Long-term trend (1-3 months): Is heading towards the 2008-2017 resistance line at 139.95. EUR/JPY continues to rebound from the 2017-18 support line at 133.23, which held the initial test. Initial resistance lies at the 136.62 recent high ahead of the 137.18 downtrend from 1981. We would expect this to hold the topside. Dips will find initial support at 134.88/50 ahead of the 133.23 uptrend.                  

   •  Goodish USD rebound offset by bullish oil prices.    •  Investors seemed to await Wednesday’s BOC decision.  The USD/CAD pair lacked any firm

   •  Goodish USD rebound offset by bullish oil prices.
   •  Investors seemed to await Wednesday’s BOC decision.  The USD/CAD pair lacked any firm directional bias and was seen oscillating in a narrow trading range above the 1.2400 handle. Last week, the pair stalled its modest recovery attempt near the 100-day SMA, support turned resistance and retreated back closer to over 3-month lows amid some intense US Dollar selling pressure, which continued exerting some downward pressure on Monday.  However, a combination of diverging factors, with a goodish pickup in the USD demand largely offset by the prevalent strong bullish sentiment around crude oil prices and has eventually failed to provide any fresh impetus to the major.  Moreover, investors also seemed reluctant to place any fresh aggressive bets ahead of Wednesday's BOC monetary policy decision and could be one of the factors leading to a subdued/range-bound price action on Tuesday.  Later during the early NA session, the release of Empire State Manufacturing Index would now be looked upon for some fresh short-term trading opportunities.Technical levels to watchImmediate support remains near the 1.2400 handle, below which the pair could head back towards 1.2355 level before eventually dropping to its next major support near the 1.2300-1.2295 region. On the upside, momentum above mid-1.2400s could trigger a short-covering bounce towards the key 1.2500 psychological mark en-route 1.2550-55 supply zone and 100-day SMA barrier near the 1.2585-90 region.
 

France Budget: €-67.5B (November) vs €-77.2B

Gold (XAU/USD) one-month 25 delta risk reversals rose to a 7-week high of -0.175 yesterday, indicating a drop in demand for bearish bets (put) on the

Gold (XAU/USD) risk reversals hit a 7-week high. Spot gold looks set to revisit 2017 high of $1357.54. Gold (XAU/USD) one-month 25 delta risk reversals rose to a 7-week high of -0.175 yesterday, indicating a drop in demand for bearish bets (put) on the XAU. The risk reversals gauge bottomed out at -1.375 on Dec. 8. The sharp rise from -1.375 to -0.175 only adds credence to the bullish move in spot gold. Reuters technicals report says the metal could revisit 2017 high of $1357.54. Key points (source: Reuters)The analysis is on the downtrend from $1,357.54 to the Dec. 12 low of $1,235.92. It reveals that gold has briefly pierced above the 86.4 percent level at $1,341. Chances are high that the metal extends its gain to $1,357.54. A projection analysis and a falling trendline on the daily chart suggest a similar target at $1,354, the 50 percent level of an upward wave C. A drop below the Jan. 15 low of $1,335.65 (first chart) could be extended to $1,329.

Karen Jones, Analyst at Commerzbank, maintains neutral to positive bias for the AUD/USD pair and expects it to extend the recent bounce from 2016-17 u

Karen Jones, Analyst at Commerzbank, maintains neutral to positive bias for the AUD/USD pair and expects it to extend the recent bounce from 2016-17 uptrend.Key quotes:“AUD/USD last week eroded the .7896 mid-October high, and targets the .7998/.8000 78.6% retracement and the .8061 200 month moving average. This is considered to be the last defence for the .8125 September high.” “It will stay immediately bid while above the .7808 low from last week. Initial support is the accelerated uptrend at 0.7864. Support at .7808 guards the 200 day ma at .7713.”

Karen Jones, Analyst at Commerzbank, notes that the EUR/GBP cross remains stuck in a narrow range between 0.8808 and 0.8925 levels. Key Quotes: “EUR

Karen Jones, Analyst at Commerzbank, notes that the EUR/GBP cross remains stuck in a narrow range between 0.8808 and 0.8925 levels.Key Quotes:“EUR/GBP has recently failed to clear an old Fibonacci retracement at 0.8925 and also recovered off the 50% retracement at .8808. Currently, we remain unable to rule out a move to the .9034 October high. Below .8808 would retarget the .8697 recent low. No really strong bias.” “Key near-term resistance is the .9034 October 12, 2017, high. This remains the barrier to the 0.9071/0.9175 61.8% and 78.6% Fibonacci retracements.“ “The cross recently sold off to the 61.8% retracement of the move seen this year at .8697. A close below here targets the .8530/78.6% retracement of the move seen this year.”

   •  Struggles to build on early modest recovery move.     •  Weaker US bond yields capping gains.     •  A goodish USD rebound still supportive.

   •  Struggles to build on early modest recovery move. 
   •  Weaker US bond yields capping gains. 
   •  A goodish USD rebound still supportive. The USD/JPY pair held on to its recovery gains through the early European session, albeit lacked any strong follow-through momentum and remained capped below the 111.00 handle. The pair stalled its recent downward trajectory and rebounded a bit on Tuesday, snapping 6-consecutive days of losing streak amid easing US Dollar bearish pressure and near-term oversold conditions.  The uptick was further supported by today's weaker than expected release of Japanese PPI figures for December and risk-on environment, which tends to weigh on the Japanese Yen's safe-haven appeal.  Meanwhile, comments by the Japanese Finance Minister Taro Aso, saying that he did not see problems with the pair hovering around 110.80 area, remained supportive of the pair's recovery attempts from 4-month lows touched in the previous session. The up-move, however, seemed lacking conviction and was being capped by weaker tone surrounding the US Treasury bond yields. This coupled with growing market expectations for lessening monetary policy divergence between the Fed and the BOJ might continue to collaborate towards keeping a lid on any meaningful recovery. Later during the NA session, the release of Empire State Manufacturing Index, the only important release from today's relatively thin US economic docket, would now be looked upon for some fresh trading impetus. Technical levels to watchImmediate support remains near mid-110.00s, below which the pair seems more likely to extend its bearish trajectory towards the key 110.00 psychological mark. On the upside, the 111.00 handle now becomes an immediate resistance, which if cleared might trigger a short-covering bounce towards 111.40 level en-route the very important 200-day SMA barrier near the 111.70 region.
 

Commerzbank Analyst Karen Jones says the violation of the support offered by the 200-week MA has opened doors for a drop to September low of 0.9421. 

Commerzbank Analyst Karen Jones says the violation of the support offered by the 200-week MA has opened doors for a drop to September low of 0.9421. Key quotesUSD/CHF has eroded an uptrend from 2015 and its 200 week ma at .9658. This was also a Fibonacci retracement and this has left immediate pressure on the downside. Intraday rallies are indicated to fail circa .9655/85. The failure at the 55 week ma introduces potential for the .9553 June 30 low and the .9421 September low. The market is on the defensive near term while below .9845, initial resistance is .9700. Erosion of the 200 week ma suggests scope for the.9421 September low.Where are we wrong? Very near term above .9845 will retarget the top of the channel at .9962.

Fresh headlines are crossing the wires, via Germany’s news website – Spiegel, citing that the German Social Democrats Party (SPD) rejects coalition ta

Fresh headlines are crossing the wires, via Germany’s news website – Spiegel, citing that the German Social Democrats Party (SPD) rejects coalition talks with Merkel’s Conservatives Party. Last Friday, the SPD and Merkel's parties reached a coalition breakthrough agreement after hours of exploratory talks. EUR/USD failed to sustain above the midpoint of 1.22 handle and fell sharply to hit daily lows at 1.2216 on the above headlines. As of writing, the spot recovers to 1.2235 levels, still down -0.26% on the day.

The UK Dec CPI Overview The UK docket has the CPI report, which will be published later this session at 0930GMT. The consumer prices in the British e

The UK Dec CPI OverviewThe UK docket has the CPI report, which will be published later this session at 0930GMT. The consumer prices in the British economy are expected to ease slightly to 3.0% in Dec y/y. While core figures, excluding volatile food and fuel costs, are also expected to decelerate to 2.6% in the reported month. On monthly basis, the consumer prices are expected to arrive at 0.4%, when compared to 0.3% seen in the month of November. Deviation impact on GBP/USDReaders can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 15 and 60 pips in deviations up to 2 to -3, although in some cases, if notable enough, a deviation can fuel movements of up to 75 pips. How could affect GBP/USD?On a positive surprise, we could see Cable retesting 1.3820/36 (multi-month tops/ Fed 2016 low), beyond which 1.3850 resistance area (psychological levels) could be tested, opening doors towards the natural resistance at 1.3900. Conversely, a bigger-than-expected drop in the headline CPI figures will cause GBP/USD pair to extend the downslide towards 1.3779/81 (NY low/ daily pivot), below which a test of 1.3717 (5-DMA) will be imminent.Key notesUK: Key economic events ahead – Nomura UK CPI: Headline and core inflation to edge down - Barclays Main market movers today - Danske BankAbout the UK CPIThe Consumer Price Index released by the Office for National Statistics (ONS) is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).  

The EUR/USD remains better bid above 1.2250 and just short of the 3-year high of 1.2297 set yesterday as markets continue to price in the change in EC

EUR/USD holds above 1.2250. Yield differential favors EUR. EUR/USD risk reversals indicate strong bullish bias. The EUR/USD remains better bid above 1.2250 and just short of the 3-year high of 1.2297 set yesterday as markets continue to price in the change in ECB's forward guidance early this year. As of writing, the currency pair is trading at 1.2265 levels. German final CPI matched the preliminary estimate of 0.6 percent. Meanwhile, WPI (wholesale price index) fell 0.3 percent vs. the previous figure of 0.5 percent. Despite the weak WPI reading, the common currency is showing no signs of weakness. Having rallied 2.97 percent since Jan. 9, the currency pair does look overbought as per the hourly and 4-hour RSI. Also, the RSI on the daily has hit the overbought territory. However, related markets continue to favor further upside in the common currency. For instance, the 10-year US-German yield spread fell to 195.6 basis points (bps) today; the lowest since mid-November. The decline in the spread in the EUR-positive manner adds credence to the sharp rally in the spot. Further, the EUR/USD one-month 25-delta risk reversals gauge rose to a 7 - week high of 0.55, highlighting the increased demand for EUR bullish bets (call options).EUR/USD Technical outlookKaren Jones, Analyst at Commerzbank writes, "EUR/USD remains on course to challenge the 1.2432 200 month ma. Support should be offered by the 1.2092 September high and the 20-day moving average at 1.1998 – the market will remain immediately bid above here.” “Below 1.1998 will trigger losses to the 1.1872 uptrend. It will remain overall bid above the 1.1872 short-term uptrend and this guards the 1.1717/12 November and December lows. The 1.1712 mid-November low guards the 1.1553 7th November low.”  

Germany Consumer Price Index (MoM) meets forecasts (0.6%) in December

Germany Harmonised Index of Consumer Prices (MoM) meets forecasts (0.8%) in December

Germany Consumer Price Index (YoY) in line with expectations (1.7%) in December

Germany Harmonised Index of Consumer Prices (YoY) meets forecasts (1.6%) in December

Germany Wholesale Price Index (MoM) registered at -0.3%, below expectations (0.3%) in December

Germany Wholesale Price Index (YoY) declined to 1.8% in December from previous 3.3%

Danske Bank’s analysts provide a list of the main market moving events slated for release this Tuesday. Key Quotes: “In the UK, CPI inflation for De

Danske Bank’s analysts provide a list of the main market moving events slated for release this Tuesday.Key Quotes:In the UK, CPI inflation for December is released, which we estimate fell back to 2.9%, from 3.1% in November, due mainly to a lower contribution from food prices. We estimate core inflation fell from 2.7% to 2.6% due to a decrease in service price inflation. Despite the higher oil prices, we expect overall inflation pressure in the UK to fade this year, as food prices seem to have peaked and GBP has stabilized in recent months. Underlying inflation pressure is still muted, as wage growth remains subdued.Later in the day we also get the US Empire Manufacturing PMI for January. The consensus is for a small increase, although severe winter weather in the region might have impaired economic activity to some degree at the start of 2018.”

Analysts at Barclays provide a brief preview of what to expect from today’s UK price pressures data due to be reported at 0930 GMT. Key Quotes: “We

Analysts at Barclays provide a brief preview of what to expect from today’s UK price pressures data due to be reported at 0930 GMT.Key Quotes:“We are broadly in line with the consensus in expecting CPIH inflation to have remained unchanged for the third consecutive month to 2.8% in December last year. As for CPI, we forecast headline and core inflation to edge down by 0.1pp and 0.2pp to 3.0% and 2.5%, respectively. We expect RPI to rise to 4.0% y/y, with the majority of the BoE Nov rate hike likely to have fed through to the mortgage payments component of RPI in December.”

According to Karen Jones, Analyst at Commerzbank, the GBP/USD pair has eroded the 2014-2017 downtrend line and a subsequent move above the 1.3658/71 d

According to Karen Jones, Analyst at Commerzbank, the GBP/USD pair has eroded the 2014-2017 downtrend line and a subsequent move above the 1.3658/71 double Fibo. now opens room for a test of 1.3836 the February 2016 low.Key quotes:“GBP/USD has recently eroded the 1.3658/71 September high and double Fibonacci retracement. The weekly close above here targets 1.3836 the February 2016 low then psychological resistance at 1.40.” “The market stays immediately bid above the 1.3477 2 month uptrend. Below the 1.3477 would retarget the 1.3291 2014-17 uptrend.” “We note the 13 count on the 240 minute chart and would allow for a retracement to 1.3680/1.3590.”

Karen Jones, Analyst at Commerzbank, offers key technical levels for trading USD/JPY today. Key Quotes: “USD/JPY has eroded the 110.85 end of Novemb

Karen Jones, Analyst at Commerzbank, offers key technical levels for trading USD/JPY today.Key Quotes:“USD/JPY has eroded the 110.85 end of November low and remains under pressure. Failure here targets the 110.15 and 108.90 Fibonacci retracements and allows for a move to the 107.34 2012-2018 uptrend. We note the 13 count on the 240-minute chart and would allow for a near-term rebound, intraday rallies are indicated to fail 111.30/65.“ “Initial resistance lies at 111.72/112.05 (200-day ma). Above here lies the 113.64/75 December highs. There is a lot of resistance directly overhead – namely the 113.92 2015-2018 downtrend line. Above here sits the 114.38/82 major resistance, we continue to favor failure.” “Above 114.38/82 would target the 118.60 January 2017 high.”

   •  A modest USD rebound capping additional gains.    •  Weaker copper prices also doing little to lend support.    •  Downside remains limited am

   •  A modest USD rebound capping additional gains.
   •  Weaker copper prices also doing little to lend support.
   •  Downside remains limited amid softer US bond yields. The AUD/USD pair lacked any firm directional bias and seesawed between tepid gains/minor losses within a narrow trading range below the key 0.80 psychological mark.  The pair now seems to have entered a bullish consolidation phase just below 4-month tops touched in the previous session and was being capped by a modest US Dollar recovery attempt.  Adding to this, weaker commodity prices, especially copper, further dented demand for the commodity-linked currency and did little to assist the pair to build on its recent strong up-move. Meanwhile, a softer tone surrounding the US Treasury bond yields was seen lending support and helped limit any deeper corrective slide from higher-yielding currencies - like the Aussie. It would now be interesting to see if bulls are able to regain control or the pair extends its range-bound price action amid relatively lighter US economic docket, featuring the only release of Empire State Manufacturing Index.Technical levels to watchFrom current levels, the 0.80 handle is likely to act as an immediate resistance, above which the pair is likely to aim towards its next major hurdle near the 0.8030-50 region. On the flip side, sustained weakness below mid-0.7900s could prompt some profit-taking slide back towards the 0.7900 handle en-route the 0.7870-60 strong horizontal support.

According to the results of the latest Reuters poll, a majority of the economists see PBOC keeping rates steady through at least until Q2 2019. Addit

According to the results of the latest Reuters poll, a majority of the economists see PBOC keeping rates steady through at least until Q2 2019.Additional findings:2018 GDP growth seen at 6.5% versus 6.4% seen in October poll. PBOC seen cutting RRR by 25 bps in Q4 2018 versus a 50 bps cut predicted by Q2 2018 in October poll.

Analysts at Goldman Sachs published their latest note on the oil market, with the key comments found below. There are some concerns as upside risks f

Analysts at Goldman Sachs published their latest note on the oil market, with the key comments found below. There are some concerns as upside risks for those forecasts are increasing; as they see that oil producers will respond to the rising price signal. Last month, Goldman Sachs’ Analysts published 2018 forecasts, with Brent and WTI seen averaging $62 and $57.50 per barrel, respectively.

Karen Jones, Analyst at Commerzbank offers a technical view of the EUR/USD pair and foresees an extension of the current bullish trajectory in the nea

Karen Jones, Analyst at Commerzbank offers a technical view of the EUR/USD pair and foresees an extension of the current bullish trajectory in the near-term.Key quotes:“EUR/USD remains extremely bid very near term and has started to erode the 1.2066 pivot line. It remains on course to challenge the 1.2432 200 month ma. Support should be offered by the 1.2092 September high and the 20 day moving average at 1.1998 – the market will remain immediately bid above here.” “Below 1.1998 will trigger losses to the 1.1872 uptrend. It will remain overall bid above the 1.1872 short term uptrend and this guards the 1.1717/12 November and December lows. The 1.1712 mid November low guards the 1.1553 7 th November low.” “It is possible that the move to 1.1553 was the end of an a-b-c correction lower. This would mean that the longer term risk is still on the topside.”

Gold traded with a mild positive bias for the fifth consecutive session and remained within striking distance of 4-month tops, touched in the previous

Gold traded with a mild positive bias for the fifth consecutive session and remained within striking distance of 4-month tops, touched in the previous session.  The precious metal built on its strong up-move from December's near 5-month lows and continued benefitting from the recent US Dollar slump, despite growing expectations for a gradual Fed monetary policy tightening through 2018 Even expectations of tighter monetary policies from the BOJ and ECB did little to dampen demand for the non-yielding yellow metal, with the prevalent strong USD bearish sentiment supportive of the strong bullish momentum for the dollar-denominated commodity.  Bulls now seemed taking a breather just ahead of 2017 daily closing highs resistance near $1349 region and the up-move was being capped by a modest greenback recovery attempt. In absence of any major market moving economic releases, the USD price dynamics would continue to act as an exclusive driver of the commodity's momentum on Tuesday.Technical levels to watchAny up-move beyond $1344 level is likely to confront resistance near $1349 area ahead of the $1357 region (2017 yearly tops). On the flip side, $1335 level now seems to act as an immediate support, which if broken might prompt some profit-taking back towards $1328 intermediate level en-route $1322 horizontal support.
 

We had a quiet Asian session, with most majors in a consolidative mode amid broad-based US dollar rebound. However, the Yen emerged a big mover, havin

We had a quiet Asian session, with most majors in a consolidative mode amid broad-based US dollar rebound. However, the Yen emerged a big mover, having reversed a part of yesterday’s sharp rally against its American counterpart, in a bid to regain 111 handle. Meanwhile, the Kiwi also traded with moderate losses, extending its retreat from four-month tops of 0.7315. Among other related markets, oil prices traded mixed while gold prices kept range near $ 1340 levels. The Asian equities advanced this Tuesday, as investors look forward to the US earnings reports. However, the Australian markets ditched the trend and shed -0.50%.Main topics in AsiaS. Korea’s FinMin: There is irrational speculation in cryptocurrencies Survey: Brexit creeps up UK risk managers' worry list - RTRS AUD/USD rally contradicts breakdown in 2Y AU-US yield spread China Press: Ratio of Treasuries in China fx reserves unlikely to fall Japan's Aso - Don't see big deal with Dollar at around 110.80 Yen ECB's Lane - Abrupt Brexit would be a "genuine shock" to financial stabilityKey Focus aheadHeading into Europe, we have a relatively eventful calendar, with the German final CPI and WPI data to be reported ahead of the key UK CPI and PPI releases. Meanwhile, the NA session offers the US Empire State manufacturing index data, which will be followed by the NZ GDT price index and SNB Chairman Jordan’s speech. Jordan is due to deliver a speech titled "How money is created by the central bank and the banking system," at the University of Zurich. EUR/USD: Volatile within range sub-1.2300 ahead of German data GBP/USD - Risk reversals rise, but resistance at 1.3836 could hold on Brexit concerns UK: Key economic events ahead – Nomura Bank of Canada - 25bps rate hike likely, but Nafta remains a risk - ING  

The greenback edged higher during the Asian session on Tuesday, helping the key US Dollar Index to extend overnight modest recovery bounce from the 90

The greenback edged higher during the Asian session on Tuesday, helping the key US Dollar Index to extend overnight modest recovery bounce from the 90.00 neighborhood.  The USD continued with its weakening trend on Monday and was being weighed down by growing market expectations for lessening monetary policy divergence between the Fed and other major central banks, namely BOJ and ECB.  Investors even shrugged off Friday's US data that showed core inflation rose slightly more than expected in December. The data reaffirmed that the Fed remains on track to raise interest rates up to three times in 2018 but failed to lend any support to the greenback.  The index now seems to have found some technical support near the 90.00 round figure mark, with a disappointing release of Japanese PPI figures helping to ease the prevalent strong bearish sentiment surrounding the buck.  Today's US economic docket features the release of Empire State Manufacturing Index, which is unlikely to be a game changer but might still assist traders to grab some short-term trading opportunities.

Japan All Industry Activity Index (MoM) above expectations (0.4%) in November: Actual (1.1%)

GBP/JPY ran into bids below 50-day MA last Thursday and rose to a one-week high of 153.10 today. However, the rise in the spot has not revived demand

Risk reversals diverge from a rally in the GBP/JPY cross. Drop in risk reversals indicate rising demand for GBP puts. GBP/JPY ran into bids below 50-day MA last Thursday and rose to a one-week high of 153.10 today. However, the rise in the spot has not revived demand for GBP calls. The GBP/JPY one-month 25 delta risk reversals fell to 5-1/2 week low of -1.20, suggesting rising demand for bearish bets (puts) on GBP. That said, the recovery in GBP/JPY from last Thursday's low of 150.19 is backed by yield differential. The 10-year UK-Japan yield has risen more than 11 basis points from the Dec. 29 low of 113.8 basis points.GBP/JPY Technical LevelsAs of writing, the currency pair is trading at 152.88. A break above 153.00 (zero levels) would expose 153.41 (Dec. 8 high) and 153.67 (Jan. 8 high). On the downside, breach of support at 152.36 (session low) could yield pullback to 151.19 (Dec. 26 low) and 151.00 (zero levels).  

The USD/JPY caught a bid wave around 110.50 in early Asia and rose above 110.84 (Nov. 27 low) to set a session high of 110.98. The Reuters report bla

USD/JPY rises to 110.98 seemingly due to chart factors. Treasury yields remain depressed. Asian stocks shrug off losses. The USD/JPY caught a bid wave around 110.50 in early Asia and rose above 110.84 (Nov. 27 low) to set a session high of 110.98. The Reuters report blames heavy demand out of Tokyo for the rise in the USD/JPY pair. While it may be true, the short-term oversold conditions seem to have played a role in strengthening the bid tone around the US dollar. The sharp recovery from yesterday's low of 110.33 could be the result of a bullish price-RSI divergence seen on the 1-hour and 4-hour chart. Also, Asian share markets shrugged off early losses, thus allowing the technical recovery to gather pace. MSCI's broadest index of Asia-Pacific shares outside Japan is up 0.4 percent. Ahead in the day, the spot could be influenced by Fed's Beige Book release and the action in the Treasury yields.USD/JPY Technical LevelsA break above resistance of 11.18 (Monday high) would put an end to 5 days low lower highs pattern and would open doors for 111.65 (Oct. 16 low) and 111.86 (50% Fib R of the recent drop). On the downside, breach of support at 110.84 (Nov. 27 low) could yield a pullback to 110.47 (session low) and 110.33 (previous day's low).

ECB member and Bank of Ireland governor Philip Lane, while speaking to the Financial Times said- Brexit is a bigger headache if there is no trade d

ECB member and Bank of Ireland governor Philip Lane, while speaking to the Financial Times said- Brexit is a bigger headache if there is no trade deal and an abrupt British departure would be a "genuine shock" threatening the stability of Europe's financial system. Until we have signs of inflation, it is appropriate for QE to continue

ING Analysts believe the Bank of Canada is set to hike rates by 25 basis points this week but could remain cautious in their assessment of the economi

ING Analysts believe the Bank of Canada is set to hike rates by 25 basis points this week but could remain cautious in their assessment of the economic outlook.Key pointsWe are seeing a recovery in wage growth and with oil prices close to $70/blue this is adding to nervousness that inflation pressures are building at a time when the economy is performing strongly. With financial markets pricing in an 80% chance of a hike and 23 out of 26 economists surveyed by Bloomberg also looking for an increase, it would be a major surprise for the Bank of Canada not to deliver. However, concerns over the future of the NAFTA free trade agreement lead us to believe that the BoC will be somewhat cautious in their assessment for the economic outlook. With President Trump having threatened to rip up the longstanding trade deal and Mexican and Canadian officials sounding cautious on the prospect for compromise ahead of the sixth and penultimate round of talks, we expect little guidance from the BoC on future moves. After all, exports to the US account for 17% of Canada’s GDP so officials will be nervously waiting to see what happens. We still think there is scope for compromise on the future of NAFTA, but this is by no means the universal view. As such, we are currently only pencilling in one further rate rise this year.

The Barclays Research Team is out with its iron-ore price forecasts for this year, underscoring concerns that a major fall to $ 50/ ton could be soon

The Barclays Research Team is out with its iron-ore price forecasts for this year, underscoring concerns that a major fall to $ 50/ ton could be soon on the cards.Key Points via Bloomberg:"Forecast an imminent sell-off for iron ore" Prices will average $50/ton in Q2, before recovering throughout H2. The bank cites three reasons for the price weakness: The winter restriction season on steel production soon to end. Port inventories of iron ore are at a record. The Chinese economy is set to slow. Forecasts average price of USD70/ton in Q1, USD50/ ton in Q2, USD58/ ton in Q3 and USD62 in Q4.

James Smith, Developed Markets Economist at ING, explains the factors that may make it difficult for the Bank of England to announce a 25 basis point

James Smith, Developed Markets Economist at ING, explains the factors that may make it difficult for the Bank of England to announce a 25 basis point rate hike Key points Core inflation to slip back in coming months - 18 months on from the Brexit vote and prices have more or less adjusted to the new level of the pound - or put another way, the rate of pass-through from the weaker currency has begun to slow. With the economy still struggling to get up to speed and raw material costs rising, some firms may continue to take a more conservative approach to wage-setting with an eye on maintaining margins. It's this latter reason that leads us to think wage growth may not pick-up quite to the extent the Bank has been penciling in. A lot still depends on Brexit, but whatever is decided, the Bank has a fairly narrow window before the summer if it wants to squeeze in a rate rise.  

Analysts at Nomura enlist the key macro events due on the cards from the UK docket today, with the key CPI and PPI figures due at 0930GMT. Consumer

Analysts at Nomura enlist the key macro events due on the cards from the UK docket today, with the key CPI and PPI figures due at 0930GMT.Consumer prices:“We expect CPI inflation to have fallen by two tenths in December, from 3.1% in November to 2.9% in December. This may not be the start of a continued fall, however, with our current forecasts having inflation rising slightly in January before embarking on a trend decline thereafter back towards its target. We see RPI inflation falling by 0.1pp in December (3.9% to 3.8%) - this fall is less than that of CPI inflation due to the RPI-CPI wedge rising 0.1pp thanks to the BoE's November rate rise, which raises the mortgage interest component of the RPI. Our forecast of a fall in inflation in December before temporarily rising in January is consistent with anecdotal evidence showing significant discounting ahead of Christmas (note the fall in the BRC shop price index).”Producer prices:“The CBI and PMI output price indices moved in different directions in December - CBI up, PMI down. What they have in common is that they are both historically high and well above their averages over the past 20 years. As a result, we expect another 0.3% m-o-m rise in headline and also core output prices in December. The combination of higher sterling during the month and a rise in crude oil prices should keep input prices broadly static.“  

The EUR/USD pair extended its overnight side trend into Asia, wavering back and forth in a 30-pips narrow range, as the bulls consolidated yesterday’s

DXY rebound loses steam. Hawkish ECB-speak supports. Eyes on German and US data The EUR/USD pair extended its overnight side trend into Asia, wavering back and forth in a 30-pips narrow range, as the bulls consolidated yesterday’s rally to fresh multi-year tops just shy of the 1.23 handle. The EUR got a fresh boost from the hawkish comments from the ECB policymaker Ardo Hansson, who noted: “Euro appreciation will not threaten the inflation outlook reflects what seems to be emerging amongst the more hawkish members of the council – that exchange rate appreciation may help bring greater monetary balance to areas that are growing strongly," as cited by the analysts at ANZ. Kathy Lien at BK Asset Management, explains: The ECB could change its guidance early this year if data continues to improve and even though we believe that the recent strength of the euro will raise red flags for the central bank especially in conjunction with rising German bond yields, until they actually express concern, there's no reason for the euro to stop rising, particularly this week.” Meanwhile, underlying broad USD weakness continued to keep the tone underpinned by the main currency pair amid converging monetary policy outlooks. Further, holiday-thinned trading from the US exaggerated moves in currencies driven by low liquidity.  Valeria Bednarik, Chief Analyst at FXStreet, notes: “This Tuesday, German's inflation figures will take center stage, while the US will only offer the NY Empire State manufacturing index.” Germany’s flash CPI estimate of 1.7% y/y is likely to be confirmed; that is a tick lower than November’s but in striking distance of the ECB’s 2.0% y/y price target.EUR/USD Technical LevelsBednarik adds: “A corrective movement seems likely on a break below Friday's high at 1.2218, the immediate support, which can reach 1.2150, where buying interest is expected to resurge. Beyond 1.2300, on the other hand, the advance will likely continue, with speculative interest then targeting 1.2500. Support levels: 1.2220 1.2180 1.2150. Resistance levels: 1.2300 1.2340 1.2375.”

The GBP/USD one-month 25 delta risk reversals gauge has turned positive courtesy of the sharp rise in the spot. Cable caught a bid wave at 1.3458 (Ja

GBP/USD risk reversals adopt a bullish bias. Resistance at 1.3836 could hold on Brexit concerns and short-term overbought technical conditions. The GBP/USD one-month 25 delta risk reversals gauge has turned positive courtesy of the sharp rise in the spot. Cable caught a bid wave at 1.3458 (Jan. 11 low) and rose to a post-Brexit referendum high of 1.3820 yesterday. As of writing, the pair is trading just below 1.38 levels. The risk reversals gauge rose to 0.075 yesterday from Friday's print of -0.15. The positive number indicates bullish bias (increased demand for GBP calls) and adds credence to the solid rally seen on the spot. Still, a risk of a short-term pullback cannot be ruled out, given the RSI on the dailies and the 4-hour chart shows overbought conditions. Meanwhile, the 1-hour chart shows a bearish price-RSI divergence. Also, Brexit concerns could play spoilsport. According to a draft seen by the Financial Times, the EU wants Britain to abide by stricter terms on immigration, external trade agreements, and fishing rights for nearly two years after it leaves the bloc. EU's tough stance has reportedly raised the stakes in negotiations over the coming weeks. That said, the dips could be short-lived as the markets could continue pricing-in the possibility of faster monetary policy tightening in the UK.GBP/USD Technical LevelsGBP/USD low at 1.3836 3 months before Brexit vote is potential resistance, says Reuters report. Bexit concerns and short-term overbought conditions may ensure the resistance remains intact. Reuters report adds, "a break of the 1.3836 low targets the 76.4 Fibo of post-Brexit fall @ 1.4189, while failure at 1.3836 would see a return to initial resistance at 1.3659/73." FXStreet Chief Analyst Valeria Bednarik writes, "the pair is poised to extend its advance, given that in the 4 hours chart, it's developing well above a bullish 20 SMA, while the RSI indicator keeps heading higher despite being at 81. The Momentum eased modestly within extreme overbought readings, but with the price about to challenge its daily high, a relevant correction is out of the question for now. The immediate resistance is February 2016 low at 1.3835, while above this last, there's little in the way until the 1.4000 figure. Support levels: 1.3765 1.3620 1.3580 Resistance levels: 1.3835 1.3860 1.3895

The EUR/JPY rose to a one-week high of 136.04 in Asia, as the 10-year German (DE) and Japan yield spread hit 6-month high of 51.4 basis points (bps) y

EUR/JPY rises to a one-week high of 136.04. 10Y German-JP spread rises in EUR-positive manner. The EUR/JPY rose to a one-week high of 136.04 in Asia, as the 10-year German (DE) and Japan yield spread hit 6-month high of 51.4 basis points (bps) yesterday.Yield spread chartThe spread bottomed out at 23.7 bps on Dec. 11 and has risen sharply in the EUR-positive manner in the subsequent days. EUR/JPY topped out at 136.64 on Jan. 5 and fell to 133.02 on Jan. 11 even though the spread increased from 38 bps to 45 bps during the same time frame.   The spread widened further to 51.4 bps, and that seems to have helped EUR/JPY recovery to 134.00 levels. The EUR/JPY cross could move 36.64 (Jan. 5 high) if the yield differential continues to widen in favor of the common currency. EUR/JPY Technical Levels A move above 136.23 (Feb. 2014 high) would open doors for 139.00 (Aug. 2015 high). On the downside, breach of support at 134.28 (61.8% Fib R of 2015 high - 2016 low) could yield 130.84 (monthly 50-MA).      

South Korea’s Finance Minister Kim Dong-yeon was out on the wires, via Reuters earlier today, making some remarks on the cryptocurrencies. Key Points

South Korea’s Finance Minister Kim Dong-yeon was out on the wires, via Reuters earlier today, making some remarks on the cryptocurrencies.Key Points:Says irrational speculation in cryptocurrencies. Tax, regulation needed in cryptocurrencies. Crypto exchange shut down is an option. The country will prepare crypto measures soon. His comments come after a report from MoneyToday cited that the government may ban cryptocurrency trading after warning investors.

According to the UK part of a global survey by German insurer Allianz, the risk of changes in legislation and regulation, including concerns over Brex

According to the UK part of a global survey by German insurer Allianz, the risk of changes in legislation and regulation, including concerns over Brexit, new trade barriers, and protectionism, climbed three places from a year earlier to become the second most significant concern for UK businesses, Reuters reports. Brian Kirwan, the UK Chief Executive of Allianz Global Corporate & Specialty, noted: “Companies must gear up to cope with the risk of sudden political and legal shocks, such as the lack of clarity over UK Plc’s future relationship with the European Union.” Meanwhile, the business interruption was considered the primary risk globally in the Allianz survey of more than 1,900 risk specialists from 80 countries.

The NZD/USD pair kicked-off Tuesday on a bearish note, correcting a part of yesterday’s rally to fresh 4-month tops of 0.7315, as the bulls take a bre

 DXY rebound caps the upside. A stronger Yuan fix underpins. Eyes on NZ GDT price index The NZD/USD pair kicked-off Tuesday on a bearish note, correcting a part of yesterday’s rally to fresh 4-month tops of 0.7315, as the bulls take a breather ahead of the key NZ GDT price index release.NZD/USD finds support near 0.7285 The spot failed to sustain above the 0.73 handle and corrected briefly before finding fresh bids near 0.7285 region, after the PBOC set the Yuan reference rate for today at 6.4372, the strongest since Dec-mid 2015. The NZD is used as a liquid proxy for bets on China, as China is New Zealand’s top trading partner. However, the Kiwi keeps losses as the US dollar stages a minor rebound against its major peers after it fell to more-than three-year lows of 90.05 a day before.  Increased expectations of higher global interests rates, suggests that the Fed is not the only central bank to move towards policy normalization this year, which in turn weighed heavily on the buck. Looking ahead, the major awaits fresh fundamental drivers for the next push higher, with the focus now on Fonterra’s fortnightly dairy auction results due later today while Chinese data dump due later in the second-half this week also keep the investors on the edge.NZD/USD TechnicalsThe pair finds next resistances at 0.7315 (4-month tops), at 0.7350 (psychological levels), 0.7391 (classic R3). Meanwhile, the supports are located at 0.7271 (5-DMA), 0.7223 (10-DMA/ zero figure) and 0.7150 (200 & 20-DMA).

AUD/USD bottomed out at 0.7501 on Dec. 8 and rose to a high of 0.7979 yesterday. The 6.37 percent rally from the December low contradicts the drop in

The 2-year yield spread no longer guides the exchange rate? AUD/USD bottomed out at 0.7501 on Dec. 8 and rose to a high of 0.7979 yesterday. The 6.37 percent rally from the December low contradicts the drop in the 2-year Aussie-US yield spread.Yield spread chartThe 2-year spread fell into the negative in November and remained depressed near zero levels throughout December. As of writing, the Aussie 2-year bond yields only 6 basis points (bps) more than its US counterpart. The declining spread indicates the Aussie dollar is no longer a high yield currency. Still, the AUD/USD pair has rallied more than 6 percent from the December low of 0.7501. Clearly, the correlation has broken down.

The 21st Century Business Herald, China’s news daily, came out with an opinion piece by Zhang Ming, a researcher at Chinese Academy of Social Sciences

The 21st Century Business Herald, China’s news daily, came out with an opinion piece by Zhang Ming, a researcher at Chinese Academy of Social Sciences, on Tuesday, citing that the ratio of Treasuries in the Chinese forex reserves is unlikely to fall in 2018.Additional Headlines via BBG: “China's holdings of U.S. Treasuries may remain stable in 2018 if the size of the country's forex reserves stays steady. The value of China's outstanding U.S. Treasuries holdings may rise or fall while the holdings as a percentage of the country's forex reserves are unlikely to fall in the short term.”

Following the comments from the Japanese Finance Minister Aso, Japan’s Economy Minister also made some remarks on the fx and financial market moves, s

Following the comments from the Japanese Finance Minister Aso, Japan’s Economy Minister also made some remarks on the fx and financial market moves, saying that his government wants to closely monitor the impact of fx and financial market moves have on the economy.

Comments from Japanese Finance Minister Aso are crossing the wires via Reuters- Don't see a big deal with dollar around 110.80 Yen.  Big currency

Comments from Japanese Finance Minister Aso are crossing the wires via Reuters- Don't see a big deal with dollar around 110.80 Yen.  Big currency fluctuations will be problematic.  No comment on FX levels.  Highly appreciate BOJ's efforts in working to achieve 2 pct inflation target.  Global economy steadily growing. 

The People's Bank of China (PBOC) set the Yuan reference rate at 6.4372 vs. previous day's fix of 6.4574.   

The People's Bank of China (PBOC) set the Yuan reference rate at 6.4372 vs. previous day's fix of 6.4574.   

A Reuters technical report says Brent oil is likely to cut through resistance at $70.30 and extend the rally to $70.77 levels.  Key points A small

A Reuters technical report says Brent oil is likely to cut through resistance at $70.30 and extend the rally to $70.77 levels.  Key points A small five-wave cycle from $67.26 is still developing. The cycle is part of a bigger wave 3, which may extend to $70.77, its 186.4 percent Fibonacci projection level, as pointed by a rising trendline. Another projection analysis on the daily chart reveals a higher target $71.37, the 86.4 percent level of an upward wave C. This wave C is capable of travelling to $75.62. Support is at $69.61 (first chart), a break below which could cause a loss to $69.06.  

Ratings agency Moody's says rising rates in Europe are unlikely to hurt corporate profits and cash flows in the medium term even though the rate hikes

Ratings agency Moody's says rising rates in Europe are unlikely to hurt corporate profits and cash flows in the medium term even though the rate hikes may dampen consumer confidence.  Key points Rate hikes are expected to be gradual and coincide with strong growth and labor market.  Rates to approach 1% for the ECB, 2% for BOE and 3% for the US Fed by 2021.  ECB tapering is expected to be gradual. 

The AUD/JPY chewed through a cluster of Fib levels - 87.97 (23.6% Fib R of Nov-Jan rally) and 88.03 (61.8% Fib R of Sep-Nov drop) earlier today and ro

AUD/JPY above 88.00 levels. Through a cluster of Fib levels. Australia motor vehicles number goes unnoticed. The AUD/JPY chewed through a cluster of Fib levels - 87.97 (23.6% Fib R of Nov-Jan rally) and 88.03 (61.8% Fib R of Sep-Nov drop) earlier today and rose to a one-week high of 88.23 levels. As of writing, the currency pair is well bid at 88.18 levels. The uptick seen today is largely due to the 0.17 percent rise in the USD/JPY.  Meanwhile, the AUD/USD is flat-lined around 0.7964. That said, it was the sharp rise in the AUD/USD pair (0.78 to 0.7979) that helped AUD/JPY stage a solid rebound from  87.21 levels (100-day MA on Jan. 10). The official data released in Australia showed motor vehicle sales rose 4.5 percent month-on-month and 6.7 percent year-on-year (compared to previous figures of 0.1 percent and 2.1 percent). However, the data has not had any impact on the AUD pairs.   Ahead in the day, the cross may remain well bid as copper prices are trading near four-year highs. Further, the Bloomberg commodity index is up more than 5 percent on a monthly basis. Still, a pullback cannot be ruled out as analysts believe the rally in AUD/USD is overstretched.AUD/JPY Technical LevelsA move above 88.37 (61.8% Fib R of Jan. 5-Jan. 10 drop) would expose 88.65 (76.4% Fib R) and 89.09 (Jan. 5 high). On the downside, breach of support at 87.98 (session low) could yield a pullback to 87.63 (Jan. 2 low) and 87.24 (100-day MA).

Analysts at Nomura offered their model's projection for today's USD/CNY fix. Key Quotes: "Our model1 projects the fix to be 238 pips lower than the

Analysts at Nomura offered their model's projection for today's USD/CNY fix.Key Quotes:"Our model1 projects the fix to be 238 pips lower than the previous fix (6.4336 from 6.4574) and 81 pips lower than the previous official spot USD/CNY close of 6.4417. The basket implied change is 98 pips lower than the previous official spot USD/CNY close (6.4319 from 6.4417)."

USD/JPY held 110.50 for the best part of overnight markets with the US being out for MLK day. Currently, USD/JPY trades at 110.72 with a high of 110.7

USD/JPY to be key around the BoJ that will be watched closely.USD/JPY bulls stepping in for a cheaper long corrective position? USD/JPY held 110.50 for the best part of overnight markets with the US being out for MLK day. Currently, USD/JPY trades at 110.72 with a high of 110.78 and a low of 111.43. USD/JPY has spiked as the dollar gets picked up for cheap by Tokyo traders anticipating a recovery of the dollar when the US return to desks. The yen is being sold off in a minor way against the euro as well, with EUR/JPY supported by the 21-H SMA at 135.54. BoJ will be keyMeanwhile, the markets will look ahead to this week's US data and the BoJ next week. Analysts at Rabobank noted that net JPY shorts continued to increase last week but they remain below their November highs. "Strong growth and a perceived drop in geopolitical risk are all negative for the safe haven JPY. However, the BoJ’s policy meeting later in January will be closely watched given talk that QQE could be adjusted this year," argued the analyst at Rabobank. USD/JPY levelsValeria Bednarik, chief analyst at FXStreet explained that the bearish trend keeps gaining traction, as the pair develops further below its 100 and 200 DMAs, while in the daily chart, technical indicators accelerate their slides, entering oversold territory. "In the 4 hours chart, the 100 SMA crossed below the 200 SMA both in the 112.50 region, while the RSI indicator heads south around 27 as the Momentum consolidated within bearish territory, all of which supports a test of 110.10 the next short-term support," Valeria added. 
 

Australia New Motor Vehicle Sales (YoY) increased to 6.7% in December from previous 2.1%

Australia New Motor Vehicle Sales (MoM) climbed from previous 0.1% to 4.5% in December

Japan Domestic Corporate Goods Price Index (MoM) came in at 0.2%, below expectations (0.4%) in December

Japan Domestic Corporate Goods Price Index (YoY) below expectations (3.2%) in December: Actual (3.1%)

Analysts at Westpac offered a breakdown of New Zealand's retail card spending. Key Quotes: "Total spending: +0.2% m/m (last +1.4%), +3.3% y/y  Reta

Analysts at Westpac offered a breakdown of New Zealand's retail card spending.Key Quotes:"Total spending: +0.2% m/m (last +1.4%), +3.3% y/y 
Retail: +0.5% m/m (last: +1.2%), +3.3% y/y  (Mkt: +0.5, Westpac: +0.5%)
Core retail: -0.2% m/m (last: +0.8%), +3.7% y/y Details: Retail spending rose modestly in December, with a 0.5% gain over the month. That was in line with our forecast. December’s increase in spending was mainly due to increased spending on fuel as a result of price increases. Looking at ‘core’ retail categories, spending was actually down 0.2% over the month. Soft core spending in December followed a sharp increase in November. However, in part that strong November result was boosted by the increased prevalence of ‘Black Friday’ sales, which saw spending brought forward to take advantage of price discounting. Annual spending growth has slowed over the past year, from rates of over 5% p.a. at the start of 2017 to rates of around 4% p.a. now. Looking to 2018, we expect that the strength in spending will fade over time. In part, this reflects an expected gradual easing of population growth. In addition, we expect that the new Government's policies aimed at cooling housing demand in turn will dampen growth in consumer spending."

AUD/USD climbed again on the back of the dollar weakness, ending the day at the highest levels since Sep last year at 0.7970. AUD/USD was able to cli

AUD/USD benefits from dollar weakness again.Aussie data will be key this week.AUD/USD climbed again on the back of the dollar weakness, ending the day at the highest levels since Sep last year at 0.7970. AUD/USD was able to climb higher despite the data from Asia that came in the form of TD Securities inflation numbers that arrived below the expectations. The Year on year data arrived at 2.3%, well below the previous 2.7% albeit still above the 2% central bank's target. The week aheadFor the week ahead, heads turn to Aussie jobs and other key data from the US economy:  Key US data coming up this week? - NomuraAUD/USD levelsValeria Bednarik, chief analyst at FXStreet explained that from a technical point of view,  the upside is still favored as in the 4 hours chart, the 20 SMA continues advancing below the current level, now above the 61.8% retracement of the September/December slide, as technical indicators hold flat within extreme overbought territory. "The pair has scope from here to extend its advance up to 0.8000, while steady gains above the level favor a continuation upward toward 0.8124, 2017 yearly high."
 

Analysts at Scotiabank explained that EUR/USD’s move to new, major cycle highs over the past week looks very constructive from a technical point of vi

Analysts at Scotiabank explained that EUR/USD’s move to new, major cycle highs over the past week looks very constructive from a technical point of view. Key Quotes:"Intraday price action suggests that the EUR rally to just shy of 1.23 earlier has been checked but there is no obvious sign of a major reversal developing." "We expect firm support on dips to the low 1.22 area and continue to view minor EUR dips remain a buy." "More broadly, having traded well through 1.2167 retracement resistance last week, we think EUR/USD should continue to rally towards the 1.25/1.30 range." "Trend strength indicators are bullishly aligned across short, medium and long run oscillators."

Analysts at ANZ offered a snapshot of the NZD performance and rates market. Key Quotes: "The NZD tested topside resistance last night against the US

Analysts at ANZ offered a snapshot of the NZD performance and rates market.Key Quotes:"The NZD tested topside resistance last night against the USD, AUD and GBP. A decent run of domestic data over the next week could well propel it higher to start 2018.  The USD remaining on the back foot is also influential.  With trade tensions suggested as one of the reasons for China to hold less US debt overnight, currency moves in 2018 won’t solely be about where the best returns are on offer either.  The re-negotiation of NAFTA is the first cab of the rank to test what the US administration means by ‘fair trade’. Rates: Yields pushed higher in the US overnight, but there was further spread compression at the long-end for Australasian rates too. Even so, the local curve will still face steepening pressure today."