Trading news

USD broadly higher, global equities in the red, strong Australian jobs trend, markets expecting a dovish BoE

- Japan: Double-digit contraction in machine orders suggests that the private sector’s confidence has been undermined by the weak global growth prospect and the lack of any evidence of a Japanese economic pick-up
- USD/JPY rebound might not compromise the bias remaining to the downside towards 115.57
- Swiss franc may fall again against the greenback, while on the upside a resistance can be found at 1.0121 
- Aussie having a second wind this morning as encouraging data emanated from the job market
  although bias remains on the downside with the next key level standing at $0.6896
- We do not expect any rate cut for the February meeting. We remain, for the time being, bearish on the AUDUSD. 0.6800 is on target
After an encouraging start to the day, US equity markets quickly turned negative on lingering risk-off sentiment. The S&P 500 fell 2.50%, the Dow Jones was down 2.21%, while the Nasdaq plummeted 3.41%. In Canada, the TSX was down 1.64% as the crude oil rout resumed with West Texas Intermediate hitting $29.93 in the late European session yesterday, a fresh 13-year low. The Brent crude tested $29.73 earlier this morning as the Brent/WTI spread reached -0.70 cents.
In Asia, regional equity markets were trading in negative territory with the exception of mainland China; both the Shanghai and Shenzhen were blinking green, up 1.97% and 3.81% respectively. The People’s Bank of China set the USD/CNY fix at 6.5616, down 0.14% compared to yesterday. Elsewhere, in Hong Kong the Hang Seng was down 0.32%, while in South Korea the Kospi edged down 0.85%. Finally, the Thai BGK fell 0.93%, in Indonesia the JCI dropped 0.50%, while in India the Sensex edged down 0.14%.
In Japan, shares took a bigger hit as machinery orders took their biggest drop in 18 months, down -14.4%m/m versus -7.3% expected and +10.7% in October. Even though the numbers are quite volatile, a double-digit contraction does not occur that often, suggesting that the private sector’s confidence has been undermined by weak global growth prospect and the lack of any evidence of a Japanese economic pick-up. USD/JPY jumped 0.75% to 118.18 after the release of the news, slightly above the previous support that lies at 118.07. On the downside, the closest support can be found at 116.18 while the next one lies at 115.57. The bias remains to the downside.
In the FX market, the US dollar outperformed all G10 currencies. The Swiss franc fell 0.30% against the greenback, erasing previous losses, and returned to around 1.0090. During the Asian session, the pair found a strong support at 1.0057 (Fib. 50% on November-December debasement). On the upside, a resistance can be found at 1.0121 (Fib. 61.8% and high from early January).
Overall, commodity currencies went through a tough Asian session as crude oil printed multi-year lows. However, the Aussie experienced a second wind this morning as encouraging data emanated from the job market. Unemployment rates surprised expectations and remained stable at 5.8%, while economists were expecting an increase of 0.1% to 5.9%. Employment change contracted by only 1,000 jobs, while the market anticipated a contraction of 10,000. The previous month’s increase was revised higher to 74.9k from 71.4k. AUD/USD is currently trading at 0.6960 after testing the $0.6937 support (low from September 29th) several times. The bias remains on the downside with the next key level standing at $0.6896 (low from September 11th).
***Yann Quelenn, market analyst: “Lingering low oil commodities are still weighing on the Australian labour market. We are closely monitoring the Australian jobs situation as most of its revenue comes from commodities for which downside risks are still significant. In addition, the China slowdown is concerning as it is Australia’s most important economic partner. Australia definitely needs revenue from more diverse sectors, outside of commodities. For one, the country's ageing population ensures the addition of jobs to the healthcare sector and tourism also remains very strong. However, Australia is also experiencing a recent surge in its services sector which has helped to offset losses in the resource industry. Finally, we remain concerned by the inflation level, below the RBA’s target band of 2%-3%. Nevertheless, there is still some room for the central bank and we do not expect any rate cuts for the February meeting. For the time being, we remain bearish on the AUDUSD. 0.6800 is on target.”***
***Peter Rosenstreich, head of market strategy: “Traders will be monitoring the Bank of England’s rate decision today. However, the rate decision itself is expected to be a non-event with no changes in policy being the universally accepted result. The primary question concerning the meeting minutes, which will be released alongside the decision, is whether the lone dissenter McCafferty will abandon his call to tighten policy. We suspect he will retain his hawkish vote. The rates markets are already priced for no tightening until deep into 2017, therefore a vote of 9-0 should have limited effect on the much-maligned GBP. The UK economy has not improved along the BoE predicted path with GDP growth being revised lower, wage growth stagnating (despite falling unemployment) and energy prices sharply declining, all of which will prompt further disinflationary impulse. Overall, the committee's tone in the minutes will probably express a more downbeat view of the UK economic outlook. Given the backdrop of volatility in global financial markets and falling oil prices there could be extended discussions concerning the spill over into UK inflation and growth. Yet, outright signaling of policy adjustments is unlikely until members get to view February's Inflation report. We remain negative on the GBPUSD with bearish targets located at 1.4230 range low. EURGBP bullish momentum remains unchanged with an initial resistant / target located at 0.7600. Elsewhere, the ECB will publish December's meeting minutes. Traders will be searching for division amongst governing council members and possibility of further easing.”***
Today traders will be watching the CPI report from Sweden; industrial production from Italy; the BoE rate decision; gold and forex reserves from Russia; import prices, initial jobless claims and Bullard’s speech from the US.

Thursday, 14 Jan, 2016 / 12:08

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