Main market themes
- Asian market is down again overnight on growing concerns about the Coronavirus. Reports say that China has halted travel from Wuhan and closed down public transport within the city in an attempt to contain the disease.
- A stronger-than-expected Australian labour market report led markets to lower the probability of an Aussie interest rate drop on 4th February. It has slipped to about 25% from over 50% before the release.
- US stocks pared early gains to finish little changed overnight as investors remained cautious and concerned over the Coronavirus outbreak that has spread beyond China just ahead of the lunar New Year holidays that would see approximately 450mil Chinese travelling for the annual celebration.
- The Dow and S&P 500 were virtually unchanged while NASDAQ edged up by a mere 0.1%. Bond yields barely moved as well – 10Y UST yields closed at 1.77%.
- Crude oil prices extended further losses as the API reported a surprise crude oil inventory build of 1.57mil barrels last week.
- The USD generally slipped across the board – Canadian dollar was the worst performer after the Bank of Canada left its overnight lending rate at 1.75% as expected but opened door for rate cut. The GBP gained as the House of Lords approved Boris Johnson’s Brexit bill; the PM said he was confident a deal could be achieved with the EU by year end.
- US Chicago Fed National Activity Index points to slower December growth: The Chicago Fed National Activity Index slipped to -0.35 in December (Nov: 0.41 revised), led by the declines in production-related indicators, thus pointing to slower economic growth at the end of 2019. Three of the four broad categories recorded lower readings while three of them also made negative contributions. Production related indicators made a negative contribution as December industrial production fell 0.3%. Sales, orders, and inventories contributed negatively due to continuous contraction in the ISM manufacturing index. Employment indicators also made a negative contribution due to a smaller gain in NFP payrolls.
- UK manufacturing business optimism jumped in January: The CBI Trends Total Order Index rose by 6pts to -22 in January (Dec: -28), reflecting a much smaller shrinkage of UK manufacturers’ exports orders, higher output volume, finished stocks. Notably, the quarterly business optimism index jumped to 23 at the start of 1Q (4Q: -44), its first positive reading since 1Q18, reflecting manufacturers’ significant gain in confidence following the signing of US-China phase one trade deal alongside tremendous easing in Brexit uncertainties.
- Japan exports slumped more than expected in late 2019: Japan exports slipped more than expected by 6.3% YOY in December (Nov: -7.9%), marking its 13th consecutive month of decline since late 2018 despite a recent uptick in global manufacturing outlook. Nonetheless, the worst may soon be over especially after world trade volume is expected to lift in 2020 following the signing of the US-China trade deal in December. The US and China are among Japan’s largest trading partners.
- Australia job report surprised to the upside: This morning’s job report surprised to the upside as the Australian economy was reported to have added 28.9k jobs in December (Nov: +38.5k revised), more than analysts’ forecast of 10.0k. The job gains however came primarily from the 29.2k gain in part time jobs as full time employment slipped by 0.3k. Unemployment rate went down unexpectedly to 5.1% (Nov: 5.2%) while participation rate was unchanged at 66%. Economists had been expecting the unemployment rate to stay unchanged at 5.2%
- Today’s European Central Bank (ECB) policy announcement is not expected to lead to any change in policy. Following the stimulus measures introduced late last year the ECB is now on hold while it assesses developments. Indeed there is a high probability that policy will be left unchanged all year.
- Today’s data calendar is very light with no releases of note in the UK. In the US we only have weekly jobless claims, which continue to point to a tight labour market, and the Kansas City Fed manufacturing index which rarely interests markets. January Eurozone consumer confidence may get some attention particularly as in December it fell to its lowest level since early 2017, raising some concerns about the consumer outlook. Markets expect a partial rebound in January. Finally, Japanese CPI inflation is forecast to have stayed well below the Bank of Japan’s target in December.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1005 (EUR801mn); 1.1110 (EUR854mn); 1.1200 (EUR1.1bn)
- GBPUSD: 1.3000 (GBP718mn); 1.3035 (GBP292mn); 1.3060 (GBP410mn); 1.3100 (GBP310mn); 1.3200 (GBP246mn); 1.3250 (GBP200mn); 1.3300 (GBP477mn)
- USDJPY: 109.15 (USD440mn); 109.80 (USD351mn)
- AUDUSD: 0.6835 (AUD626mn); 0.6865 (AUD501mn); 0.6915 (AUD1.9bn)
EURUSD (Intraday bias: Bearish below 1.1120 Bullish above)
From a technical and trading perspective, with the optionality in the 1.11/1.1150 area expiring, prices took out the 1.11 support, as 1.1120 caps corrections look for a test of pivotal 1.1040/60, look for daily reversal patterns from this level as an opportunity to take on long exposure. If bids fail to emerge here bears will press for a test of bids towards 1.10 and stop below.
GBPUSD (Intraday bias: Bullish above 1.31)
From a technical and trading perspective, as 1.3035 caps corrections to the upside look for a test of bids and stops below 1.2950. A close above 1.31 would suggest a delay to downside objectives opening a retest of range resistance, with offers and stops above 1.32 targeted. Watch for 1.3035 to now act as support, if this level holds intraday expect a test of offers and stops above 1.31. Yesterday’s 1.31 breach encourages a bullish bias as 1.31 now acts as support bulls target a test of 1.32 offers & stops above.
USDJPY (intraday bias: Bearish below 109.80)
From a technical and trading perspective, the breach of 109.50 provides a window for upside extension to challenge the 110.50 equidistant swing objective. Only a failure back below 109.80 would suggest a period of consolidation/correction. Note significant sentiment divergence developing which will likely be addressed over coming sessions. As anticipated sentiment and momentum divergence has been addressed with the breach of 109.80 as this levels caps upside attempts now look for a move to test bids at 10940/20.
AUDUSD (Intraday bias: Bullish above .68500)
From a technical and trading perspective, the failure to establish ground above .6940 has seen the anticipated freshly minted long liquidation opening another test of .6840/20 bids. If bids fail to emerge here look for a test of ascending trendline support to .6800. Initial bids in the the PPRZ referenced in yesterday’s Chart of the Day suggest the potential for further upside development a breach of the overnight highs at .6880 will likely see a grind towards sizeable optionality at .6915 into the New York session.
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