- Investors were eager to take their profits home ahead of the weekend break as the risk environment is slow to improve while US futures are trading in positive territory ahead of the much awaited CPI report due for release later this afternoon
- We are more pessimistic than the market regarding current CPI which we believe should print lower than expected, driven by very low oil prices
- The US dollar went through a tough week as FOMC minutes suggest the Fed is clearly backing away from the four initial rate hikes, which were initially signalled, on global downturn concerns
- USD/JPY may further weaken as a disappointing CPI read could finally bury all expectations of a rate hike in 1H
- AUD/USD fell 0.77% is trading range bound as the downside support can be found at around $0.70, while on the upside, a strong resistance lies at 0.7243
- NZD/USD may break 0.6640-0.6670 area to the upside eventually sending a strong bullish signal. On the downside a key support can be found at 0.6348
Asian equities were unable to consolidate previous days’ gains as crude oil prices moved south. Investors were eager to take their profits home ahead of the weekend break as the risk environment is slow to improve. Japanese equities fell the most with the Nikkei and the Topix down 1.42% and 1.48% respectively. In mainland China, equity returns were mixed as tech companies gained in Shenzhen while the broader market paired losses. Shares were up 0.49% in Shenzhen and down -0.10% in Shanghai. Odefinffshore, Hong Kong’s Hang Seng edged down 0.60%, while in Singapore the STI dropped 0.21%. In Europe, futures are pointing to a lower open, while US futures are trading in positive territory ahead of the much awaited CPI report due for release later this afternoon.
Initially, USD/JPY extended losses as investors favoured safe haven assets but rapidly erased early session gains on disappointing Japanese data. The all industrial activity index contracted 0.9%m/m in December, missing estimates of -0.3%, while previous reading was downwardly revised to -1.1%m/m. The US dollar went through a tough week as FOMC minutes suggest the Fed is clearly backing away from the four initial rate hikes, which were initially signalled, on global downturn concerns. USD/JPY hit 112.71 in Tokyo before bouncing back to 113.20. The risk remains on the downside as a disappointing CPI read could definitely bury all expectations of a rate hike in H1.
**Yann Quelenn, market analyst, Swissquote: “US Inflation data will be released today. Traders will analyse these figures carefully as concerns remain regarding the true state of the economy. Indeed, policymakers are long awaiting a pick up in inflation on the back of the sharp improvement in labour conditions. The unemployment rate has fallen below 5%, which many consider as representing full employment. Wage growth is also trending higher, as we can see from the last average hourly earnings data, which increased 2.5% in January. However, these better jobs conditions have not translated into more inflation and we think it is because of two main reasons.
Firstly, the unemployment rate is fairly low but we think that it is largely undervalued (many jobless workers are eventually pulled out of the statistics) so wage growth remains subdued as competition puts downside pressures on salaries. Secondly, the overall global situation has Americans alarmed, resulting in a clear preference for personal savings which rose to 5.5%, the highest level in three years. Flat January retail sales are confirming this fact after an already disappointing December.
We do not see the current trend in personal savings going anywhere anytime soon as global concerns linger and remain more pessimistic than the market regarding current CPI which we believe should print lower than expected, driven by very low oil prices.” **
Commodity currencies experienced strong selling pressures as crude oil failed to consolidate previous weeks' gains. The Australian dollar fell the most overnight as investors switched to risk-off mode, buying the Swiss franc and the Japanese yen. AUD/USD fell 0.77% and hit $0.71. On the downside, a support can be found at around $0.70 (psychological level and previous low) then 0.6828 (low from January 15th). On the upside, a strong resistance lies at 0.7243 (high from February 4th), then 0.7328 (high from December 31st).
NZD/USD was lacking the strength to break the 0.6640-0.6670 area to the upside. This key resistance area is the point of convergence of a few indicators (50dma, 200dma and the upper bound of the multiyear declining channel). A break of this area to the upside would send a strong bullish signal. On the downside a key support can be found at 0.6348 (low from January 20th).
Today traders will be watching the consumer confidence indicator from Denmark; the unemployment rate from Sweden; retail sales and public sector net borrowing from the United Kingdom; retail sales and inflation report from Canada; inflation report from the USA; consumer confidence from the euro zone.