The GBP/USD pair managed to survive above 1.20 handle so far this Tuesday, although the recovery ran out of legs near 1.2060 region, as risk-off prevails ahead of the UK PM May’s speech due later in the day.
GBP/USD making lower tops on hourly charts
The cable is back in the red zone, after a brief peek into positive territory, as markets refrain from placing any directional bets on the GBP ahead of the main risk event for the upcoming months - the UK PM May’s speech, which is rumored to be scheduled around 11.00GMT.
The UK Press has outlined 12 key points on which PM May will hold her speech on Brexit, signaling that the UK will not have "partial" membership of the EU "that leaves us half-in, half-out." Her comments pointing towards a Hard-Brexit will pose a big economic slowdown threat for the UK economy and hence, will heavily weigh on the pound.
However, markets may not leave any opportunity to unwind the GBP shorts if the UK PM May’s speech disappoints markets and does not have a huge negative bearing on GBP/USD pair.
Meanwhile, the immediate focus now remains on the UK CPI data, which will be published ahead of the UK PM May’s speech.
GBP/USD Levels to consider
In terms of technical levels, upside barriers are lined up at 1.2095/99 (5-DMA/ daily R1), 1.2157 (10-DMA) and 1.2200 (zero figure). While supports are aligned at 1.1988 (multi-week low) and 1.1850 (post-Flash crash low) and below that at 1.1800 (key psychological support).
The GBP/JPY cross is attempting a break above 137.58 (50% fib retracement of Nov 9 low - Dec 15 high) ahead of the UK PM May’s speech, which could offer insights into whether the government is ready for ‘hard Brexit’.
Supported by monthly 5-MA
The sellers ran out of steam around the monthly 5-MA level of 136.98 on Monday. The pair clocked a high of 138.15 on Monday after PM May’s spokesperson denied ‘hard Brexit’ talks.
However, the bounce was short-lived as the markets did not buy the denial. It remains to be seen if PM May’s Hard Brexit talk later today is well received by the markets.
GBP/JPY Technical Levels
The pair was last seen trading around 137.58 (50% fib). A break above the same would open the doors to 138.51 (Nov 29 low) and then to 138.97 (5-DMA). On the other hand, a breakdown of support at 137.09 (session low) would expose 136.45 (previous day’s low) and 136.01 (100-DMA).
The Australian Today reports comments from RBA’s board member Ian Harper, following his interview with the WSJ earlier today.
“Economists say that a serious trade battle between the world's two biggest economic powers (US & China) would likely hammer the Australian dollar ... in that scenario, a weaker Aussie dollar would help the local economy, while policy makers in Beijing would also likely take action to prop up Chinese growth ... "You would expect some countervailing action to stimulate Chinese economic activity"
"I'd like to see the (Australian-dollar) rate weaker than where we've seen it over the last 2-3 years, that's for sure"
But he does not a sudden decline on the horizon
Forecasting a rebound in economic activity from the unexpectedly weak third quarter
Economy was weak in the absence of strong non-mining investment and government spending
"Non-mining business investment ... It has been growing, but it needs to grow faster."
Employment growth is weak
Retail spending isn't as strong as it otherwise could be
OPEC’s Secretary General Barkindo said in his speech on late-Monday, he forecasts that stability would return to oil markets this year.
"And stability to the oil market that has eluded us for nearly three years will be restored on a sustainable basis in the interest of producers, consumers and the global economy."
The International Monetary Fund (IMF) revised China’s 2017 GDP forecast to 6.5%, which is 0.3 percentage points higher than their October forecast.
However, the Fund warned that China’s credit fueled recovery could only end up in deeper problems.
“Continued reliance on policy measures, with rapid expansion of credit and low progress in addressing corporate debt, especially in hardening the budget constraints of state-owned enterprises, raises the risk of a sharper slowdown or a disruptive adjustment”, the IMF said.
The NZD/USD pair formed a Doji candle on Monday, which suggests indecision on the part of traders ahead of the Global Dairy Trade price auction.
Hovers around 0.71 handle
The spot was last seen trading around 0.71 handle. At the last auction, the average price of whole milk powder (WMP) fell almost 8%. The GDT price numbers came out weak at -3.9%. The decline in prices at the start of the year rocked the dairy futures.
As per NZ Herald reports, "Futures market trading is pointing to a mild improvement in dairy prices at this week's GlobalDairyTrade auction after a surprisingly weak start to the year."
NZD/USD Technical Levels
A break below 0.7086 (200-DMA) would open doors for the downward sloping 50-DMA level of 0.7062. A violation there would expose 0.70 (zero levels). On the other hand, a break above 0.7118 (session high) could yield a rally to 0.7150 (100-DMA) and then to 0.7170 (Nov 30 high).
PBOC sets USD/CNY at 6.8992 vs 6.8874
Analysts at Westpac offered an outlook for the antipodean cross, AUD/NZD, and rates.
"Corrections appear to be continuing and could run as far as 1.0450 during the days ahead. Thereafter the multi-week rally should resume.
AUD/NZD 1-3 month: Higher to the 1.0650-1.0770 area, mainly for valuation reasons. The cross remains well below fair value estimates implied by interest rates, commodity prices and risk sentiment. However we acknowledge the AUD’s higher sensitivity to China news, as well as Australia’s AAA downgrade risk, any such action likely to delay any return towards fair value during the next few months (11 Jan).
AU swap yields 1 day: The 3yr and 10yr should open around 2.10% and 2.90%, respectively.
AU swap yields 1-3 month: The 3yr has probably based at 1.60%, the RBA expected to sit tight at a 1.5% cash rate for some time. (7 Nov).
NZ swap yields 1 day: NZ 2yr swap rates should open at 2.40%, the 10yr at 3.40%.
NZ swap yields 1-3 month: The RBNZ ended its easing cycle on 10 Nov and will remain on hold for a long time. That will anchor the short end somewhat (although the 2yr-OCR spread – one measure of stretchedness – could rise further given historical precedents) with the long end free to follow offshore yields. The curve steepening trend should continue."
Currently, USD/JPY is trading at 113.88, down -0.19% on the day, having posted a daily high at 114.25 and low at 113.83.
USD/JPY opened in Tokyo with a decisive offer following on from the better offered feel at the start of this week while consolidating the initial supply that started when markets returned for 2017.
Brexit fears mounting up on more Telegraph news for May's Brexit 12 point plan delivery speech
There is an air of uncertainty again that has been sparked by the weekend's news and today's reported in the Telegraph that PM May's keynote speech will include a 12 point plan that will leave no room for a soft exit. This, coupled with the reversal of the Trump trade offers the Yen support ahead of Trump's inauguration on Friday.
Meanwhile, US markets were closed overnight but the US premium has been diminishing of late with a rise in yields and the Fed's fund rate, but for the day ahead in the US session we only have NY Fed's Dudley who will speak on consumer behaviour and Williams is also speaking. The key event remains with Wednesday's CPI and Friday's inauguration.
Spot is presently trading at 113.92, and next resistance can be seen at 114.01 (Daily Classic S1), 114.14 (Monthly Low), 114.14 (Weekly Low), 114.14 (Daily Open) and 114.19 (Hourly 20 EMA). Next support to the downside can be found at 113.83 (Daily Low), 113.62 (Yesterday's Low), 113.44 (Daily Classic S2), 113.04 (Weekly Classic S1) and 112.72 (Daily Classic S3).
Nomura's model projects the fix to be 154 pips higher than the previous fix (6.9028 from 6.8874) and 52 pips higher than the previous official spot USD/CNY close of 6.8976. The basket implied change is 151 pips higher than the previous official spot USD/CNY close (6.9127 from 6.8976), Nomura adds.
The market for the Kiwi has been relatively subdued at the start of the week with much of the focus on the pound and the hard-Brexit concerns that have given way to a phase of risk aversion once again in Global markets.
However, focus will soon turn to New Zealand and the correlation between the kiwi and global dairy prices. We have seen a slump in global demand of late, but as the NZ Herald reports, "Futures market trading is pointing to a mild improvement in dairy prices at this week's GlobalDairyTrade auction after a surprisingly weak start to the year."
The consensus of world dairy prices for the year ahead is that production in decline should be supportive while supply is speculated to continue to contract in major producing countries, except the US where there is a strong domestic demand for butter, along with a range of commodities as a whole.
"Whole milk powder prices look likely to improve a little after dropping 7.7 per cent at the previous sale in what was later seen as a rebalancing between the main products on offer," explained Jamie Gray, a business reporter for the NZ Herald.
NZD/USD 1-3 month:
Analysts at Westpac expect the bird to move lower to 0.6800. "The US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead. The Fed’s assertive tightening projections plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that, the NZ economy is strong and dairy prices have risen, but these forces are subservient to the US dollar’s trend."
The Telegraph put out another news today and is gearing up the markets for some hard Brexit talk from UK Prime Minister on Tuesday that the 'Media Group say will fall in as a 12 point Brexit plan.
"The Prime Minister will say that Britain is quitting the single market and although she will be less explicit on the issue of the customs union, her remarks will make clear that after Brexit the UK will no longer be a member," wrote Peter Dominiczak, political editor of the Telegraph.
The keynote speech and the 12-point plan for Brexit is likely to send the pound lower as PM May vows that the UK will not have "partial" membership of the EU "that leaves us half-in, half-out" and subsequently, this will expose the UK to huge economic uncertainties. However, those hoping for a softer Brexit or not one at all will be looking out for the result of the Supreme Court that delivers a ruling this week on whether Theresa May has the power to trigger Article 50 using a royal prerogative, rather than by an Act of Parliament - March 31 of 2017 is the deadline that the PM had set for invoking Article 50 by notifying the European Council of Britain's intention to leave the EU.
The article in the Telegraph ecnded with a slice of May's optimisim when she recent said, “I want us to be a truly Global Britain – the best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too. A country that gets out into the world to build relationships with old friends and new allies alike.”
Currently, AUD/USD is trading at 0.7470, down -0.06% on the day, having posted a daily high at 0.7481 and low at 0.7468.
Market wrap: risk aversion increasing, watching sterling - Westpac
AUD/USD was up to meet the 200 dma at the 0.75 handle, but has been unable to breach the psychological level with any conviction. This level is a historic resistance level and a move higher on a daily closing basis would bring the 2016 summer time commencing channel that lasted until November with a range between 0.7420 and 0.7780.
Analysts at Westpac explained that the Aussie continues to gain support from rising Chinese bulk prices and the general correction in USD with scope for a test of 0.7530/40. Should risk aversion build, the 0.7430-50 should provide support.
US dollar ends higher, consolidating around 101.50
AUD/USD 1-3 month:
The analysts at Westpac are bearish longer term looking for a move below 0.7200. "The US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead. The Fed's assertive tightening projections plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data should improve in Q4 and Q1, but these forces are subservient to the US dollar's trend. There's also the issue of Australia's AAA rating, seen at risk."
Current price is 0.7471, with resistance ahead at 0.7475 (Daily Open), 0.7477 (Hourly 20 EMA), 0.7481 (Daily High), 0.7486 (Daily Classic PP) and 0.7500 (Monthly High). Next support to the downside can be found at 0.7468 (Daily Low), 0.7463 (Daily Classic S1), 0.7458 (Yesterday's Low), 0.7453 (Hourly 100 SMA) and 0.7436 (Weekly Classic PP).
Analysts at ANZ explained that US markets were closed for Martin Luther King Day, leaving activity naturally subdued.
"Elsewhere, European bourses were offered as there are some expectations that Thursday’s central bank meeting may be a bit more balanced with some looking for hints at when the ECB may start to taper QE. There has also been chatter in the market about peripheral bond yields (particularly Portuguese yields) going higher as the ECB approaches holding limits on Portuguese bonds. With Euro area core inflation at 0.9% y/y and an unemployment rate of 9.8% – which indicates a significant negative output gap – we think that it is far too early for any talk of tightening. But in any case, markets are fatigued with QE and have seen what happens when it has ended elsewhere. Oil was mildly higher (WTI at ~$52.60/bbl) and gold was firmer (at ~$1202 oz.), but the overall CRB index was a tad softer, down ~0.2% at 6.30am NZT."
Currently, USD/CAD is trading at 1.3180, down -0.05% on the day, having posted a daily high at 1.3189 and low at 1.3172.
We had a US holiday today and much of the tone was risk -off, favouring the greenback to some degree after yesterdays crash in the pound again on the open of early Asia in thin trade.
Market wrap: risk aversion increasing, watching sterling - Westpac
We look to Wednesday’s Bank of Canada policy decision for domestic events for CAD, that will be accompanied with a statement, and MPR forecast update. "We remain CAD bears on the basis of relative central bank policy and look to CAD weakness into and through Wednesday’s BoC...OIS are still pricing roughly 5bpts of tightening over the next 12 months, leaving CAD vulnerable to weakness in the event of a moderation," explained analysts at Scotiabank, adding, "We hold a bearish CAD forecast looking to 0.71 for end-Q2."
US dollar ends higher, consolidating around 101.50
USD/CAD has been climbing higher and away from the support of the 200 day MA support at 1.3146. "We anticipate gains through 1.3180 toward the mid-1.32s," offered analysts at Scotiabank.
Spot is presently trading at 1.3180, and next resistance can be seen at 1.3187 (Daily Open), 1.3189 (Daily High), 1.3190 (Yesterday's High), 1.3194 (Daily Classic R2) and 1.3212 (Hourly 200 SMA). Support below can be found at 1.3172 (Daily Low), 1.3165 (Hourly 100 SMA), 1.3162 (Daily Classic R1), 1.3153 (Hourly 20 EMA) and 1.3151 (Weekly Classic PP).
Currently, NZDUSD is trading at 0.7105, down -0.36% on the day, having posted a daily high at 0.7148 and low at 0.7076.
The New Zealand dollar started a new year with a decent recovery all the way from 0.6883 (Jan. low) amid neutral to bearish expectations from different analysts and technical indicators. However, It's not over until It's over, a perfect quote to explain how markets tend to change and adjust on a weekly basis (or in a matter of seconds) as prices printed a new high at 0.7145, not too far from 0.7237 (Dec. 2016 high).
Expected mild improvement in dairy prices; more NZD upside ahead?
The Cattle Site reports ahead of this week's GDT auction, "Whole milk powder prices look likely to improve a little after dropping 7.7 percent at the previous sale in what was later seen as a rebalancing between the main products on offer. In the big picture, analysts said the likelihood of continued declines in world production would remain supportive for prices this year."
New Zealand's robust residential market; Healthy economy?
NZherald reports on the state and current real estate indicators, "The Nationwide property has hit the $1 trillion mark for the first time. In comparison NZ listed stocks are worth a combined $114 billion, Auckland investors increased last year after being initially being affected by the loan-to-value ratio restrictions from late 2015, accounting for 43 percent of sales, The QV House Price Index shows annual growth in Hamilton peaked at 31.5 per cent in July 2016, while Tauranga's peak was a month later at 28.5 per cent. Net migration, low-interest rates, and low supply continue to contribute to rising house prices across the country."
NZD/USD Levels to consider
In terms of technical levels, upside barriers are lined up at 0.7237 (Dec. 2016 high), 0.7400 (Nov. 2016 high) and 0.7484 (2016 multi-week high). While supports are aligned at 68.83 (Jan. low) and 0.6861 (Dec. low) and below that at 0.6674 (June 2016 low).
To summarize if dollar weakness were to continue (that's a big 'if') and Global Dairy Trade adjusts slightly to the upside with a positive reading, then a retest of previous 2016 highs are a doable impossible. Furthermore, on the long-term perspective, the Kiwi has two potential horizontal values that traders and investors most note: at 0.7002 (short-term 61.8% Fib) towards 0.7488 (short-term Fib extension) this value trapped 482-pips from high to low. Then, from 0.8841 (Aug. 2011 high) backward to 0.3900 (Oct. 2000 low) the long-term Fib projection delivers another relative value to consider at 0.6952 (long-term 61.8% Fib) towards 0.6370 (long-term 50.0% Fib) if prices close and open below that 61.8%, it can push prices lower in the next 6-months.
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