- In Asia, equity returns are mixed today but selling pressures remain strong
- The single currency paid the price of a worsening risk-off sentiment as it lost ground against the US dollar in overnight trading with EURUSD nearest support at 1.0711
- Over the short-term, the Japanese yen will likely continue to take advantage of the global risk-off sentiment. USD/JPY is now heading towards the next key area at around 116.18-115.57
- We believe that the pound sterling has been widely oversold, meaning that a reversal is increasingly likely, approaching a key support lying at 1.4231
- We think that the crude oil downside momentum will continue due to the lifting of sanctions on Iran
- An agreement between OPEC members on a possible supply in order to increase price and profits seems currently impossible. As a result, we target a price of $25 per barrel of Brent over the medium-term
The data released on Friday painted a gloomy picture of the US economy and dampened the mood after a week dominated by fears of recession. Retail sales ex-auto contracted -0.1%m/m in December versus +0.2% median forecast, while the previous month increase was downwardly revised to 0.3% from 0.4%. The manufacturing sector continues to struggle in a strong dollar environment and faltering global demand. The Empire Manufacturing index slid to a seven-year low in January, reaching -19.37 from a downward revision of -6.21. Industrial production contracted another -0.4%m/m in December, below market expectations of -0.2% but above the previous revised contraction of -0.9%. Finally, Michigan sentiment index improved to 93.3 from 92.6, beating consensus of 92.9. After opening down more than 2%, US equities remained relatively stable on Friday in spite of the bad news. US stock and bond markets will be closed Monday for Martin Luther King Day, while FX volume are expected to be thin in New York.
The single currency paid the price of a worsening risk-off sentiment as it lost ground against the US dollar in overnight trading. EUR/USD fell as much as 1% from Friday’s high to 1.0875 in Tokyo earlier this morning. The nearest support can be found at 1.0711 (low from January 5th) while a resistance stands at 1.1060 (high from December 15th).
In Asia, equity returns are mixed today but selling pressures remain strong. In mainland China, all equity indices managed to stay in positive territory with the Shanghai and Shenzhen Composite up 0.44% and 1.90% respectively. In Japan, the Nikkei fell 1.12%, while the broader Topix dropped 1.04%. BoJ’s governor Kuroda declared, during a branch manager meeting, that the central bank will continue easing until the 2% inflation target is reached. On the data front, industrial production’s final reading printed higher to -0.9%m/m from -1.0% first estimate. USD/JPY’s response was muted and moved sideways between 117.00 and 117.36. Over the short-term, the Japanese yen will likely continue to take advantage of the global risk-off sentiment. USD/JPY already broke the 118 support and is now heading towards the next key area at around 116.18-115.57 (lows from August 24th and December 2014).
In Europe, futures are pointing to a higher open with the Footsie up 0.44%, the DAX 0.58%, the SMI 0.66% and the CAC 0.18%. After falling 3.5% since the beginning of the year, GBP/USD failed to validate a break in the strong 1.43 support and is currently trading nearby. We believe that the pound sterling has been widely oversold, meaning that a reversal is becoming increasingly likely. The cable is approaching a key support lying at 1.4231 (low from May 21st 2010); a strong boost will be needed to break this level to the downside.
***Yann Quelenn, market analyst: “The Brent slid below 28 dollars per barrel at the beginning of the Asian session before bouncing back slightly. Oil is trading at levels unseen in the last 12 years in a major context of oil oversupply. OPEC members, concerned about keeping the market share and pushing other oil producers out of the market, supply more than 1 million barrels per day. We believe that the crude oil downside momentum should keep going as sanctions against Iran have been lifted due to the recent compromises concerning the country's nuclear programme as was stipulated under the deal that was signed last year between Iran and the International Community. The lifting of these sanctions will result in an additional 500k barrels per day. Any agreement between OPEC members on a possible supply in order to increase price and profits seems currently impossible. In particular, tensions between Saudi Arabia and Iran are preventing any such possible cooperation as it seems the key driver in this conflict is to become the leading regional power. As a result, we target a price of $25 per barrel of Brent over the medium-term.”***
Today’s economic calendar will be light: Trade balance from Italy; weekly inflation report and trade balance from Brazil; current account balance from Russia.