Dollar Weakness in Focus ahead of a Busy Week

Market overviews

Dollar weakness remains the main focus in rather directionless markets today. The greenback suffered steep selloff last Friday on rumors that Fed would discussing cutting short the balance reduction process. And Dollar will face a number of key events this week. FOMC meeting is for sure a highly anticipated one. In addition, US-China trade talk will resume. Non-farm payroll will be released, plus possible a number of missed economic data too.

As for today so far, Sterling is the weakest one, followed by Canadian Dollar. But both are just correcting some of last week’s gains. The picture may change drastically ahead. On the other hand, New Zealand Dollar is the strongest, followed by Yen and then Swiss Franc, suggesting lack of direction in the risk markets.

Technically, two focuses will be on 0.7233 in AUD/USD and 1.3180 in USD/CAD. Break of these levels will confirm resumption of selloff in Dollar again the two currencies. GBP/USD’s break of 1.3174 key resistance carries larger bullish implication. We’ll see if GBP/USD could sustain above this level and extend the gain. Or, rebound in EUR/GBP from 0.8620 key support level would drag GBP/USD back below 1.3174.

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In other markets, Nikkei closed down -0.60% at 20649. Currently, Hong Kong HSI is down -0.16%. China Shanghai SSE is down -0.17%. Singapore Strait Times is down -0.13%. Japan 10-year JGB yield is down -0.002 at -0.002, turned negative.

Trump: Less than 50-50 to make a border security deal

Trump reiterated his pledge for the border wall on Sunday and tweeted that “Does anybody really think I won’t build the WALL? Done more in first two years than any President!” He also told WSJ that another government shut down is “certainly an option”, as well as declaring national emergency.

On Friday, Trump conceded to Democrat’s demand and agreed to a deal to end the partial government shutdown without the border wall. The Congress now has until February 15 for bipartisan negotiations on border-security plan. But Trump said “”I personally think it’s less than 50-50” of making a border security deal.

May said to privately rule out no-deal Brexit

The Sun reported that UK Prime Minister has privately told the Cabinet that she will rule out no-deal Brexit. That came under influence of Remainer ministers and the under the worry that hard Brexit would cost UK lost of jobs. But for now, she won’t do it publicly, as it could remove a key bargaining chip with EU.

Bob Sanguinetti, chief executive of the UK Chamber of Shipping, warned that “In the absence of a viable alternative to the Withdrawal Agreement, we continue to be heading for a no-deal scenario which is damaging, disruptive and chaotic to business, to manufacturers and consumers”. And he urged to “put aside party politics and in the moment of need that we find ourselves in, we need to look at the bigger picture and look at what is best for the country”.

Separately, Brexiteer Boris Johnson wrote in Telegraph on Sunday, saying May is seeking legally binding change to the Irish backstop fro the EU. However, Ireland has already make it clear they won’t accept any change to the current backstop agreement.

BoJ minutes: Momentum towards 2% inflation target was being maintained

In the minutes of December 19/20 BoJ monetary policy meeting, most members shared that “although it would take time to achieve the 2 percent price stability target, it was appropriate to persistently continue with the powerful easing under the current guideline for market operations as the momentum toward achieving 2 percent inflation was being maintained”.

Regarding Japan’s economic outlook, members “concurred that it was likely to continue its moderate expansion”. And they “shared the recognition that domestic demand was likely to follow an uptrend”. However, one member warned that “exports, including those to China, had been weak as a whole”. Another member pointed to “increasing number of firms held cautious views, mainly against the background of the prolonged US-China trade friction”.

On prices, members shared the recognition that “CPI continued to show relatively weak developments compared to the economic expansion and the labor market tightening”. But most agreed that CPI was “likely to increase gradually toward 2 percent”.

Busy week ahead with US-China trade talk, FOMC, NFP, Brexit, Eurozone GDP…

It’s a very busy week ahead. In the US, vice ministerial trade talk with China will start on Monday, in preparation for meeting between Chinese Vice Premier Liu He and US Trade Representative Robert Lighthizer on January 30/31. FOMC is expected to keep interest rate unchanged but main now formally adopt a more flexible stance on monetary policy. Non-farm payroll report, with wage growth eyed, will be the usual focus at the start of the month on February 1. And some more data could be released as US government is back to normal after the historical shut down.

Brexit debate will resume in the Commons on Tuesday. Prime Minister Theresa May’s so called plan B will be voted on. But the main focuses are on the amendments which should decide the way forward. In particular, business will look into to some form of assurance of no no-deal Brexit after voting on the amendments. UK will also release PMI manufacturing.

Regarding economic economic data, Eurozone GDP and CPI, China PMIs, Australia CPI, Canada GDP, New Zealand GDP, etc, could all be market moving . Here are some highlights for the week:

  • Monday: BoJ minutes, corporate service price index; Eurozone M3
  • Tuesday: New Zealand trade balance; Australia NAB business confidence; Swiss trade balance; US S&P Case-Shiller house price, consumer confidence;
  • Wednesday: Japan retail sales, consumer confidence; Australia CPI; French GDP; German CPI, Gfk consumer climate, import prices; Swiss KOF economic barometer; UK M4 money supply, mortgage approvals; US ADP employment, pending home sales, FOMC rate decision;
  • Thursday: BoJ summary of opinions, industrial production, housing starts; China PMIs; Australia import prices; German retail sales, unemployment; Eurozone GDP, unemployment rate; US Challenger job cuts, personal income and spending, jobless claims, Chicago PMI; Canada GDP, IPPI, RMPI;
  • Friday: Japan unemployment rate; China Caixin PMI manufacturing; Swiss SECO consumer climate, retail sales; Eurozone PMI manufacturing final, CPI flash; UK PMI manufacturing; US non-farm payroll, ISM manufacturing

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3165; (P) 1.3264; (R1) 1.3314; More…

Intraday bias in USD/CAD remains on the downside for 1.3180 low. Fall from 1.3664 is possibly resuming. Break of 1.3180 will confirm this bearish case and target 61.8% projection of 1.3664 to 1.3180 from 1.3375 at 1.3076 next. In case of recovery, risk will remains on the downside as long as 1.3375 resistance holds.

In the bigger picture, structure of the medium term rise from 1.2061 (2017 low) is not clearly impulsive so far. Hence, we’d stay cautious on strong resistance from 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685 and 1.3793 resistance to limit upside, and bring medium term topping. But in any case, medium term outlook will stay bullish as long as channel support (now at 1.3036) holds. Sustained break of 1.3793 will pave the way to retest 1.4689 (2015 high).

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Corporate Service Price Y/Y Dec 1.10% 1.20% 1.20%
23:50 JPY BoJ meeting minutes
9:00 EUR Eurozone M3 Money Supply Y/Y Dec 3.70%

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