USD Stronger As Equities Rally

News and Events:

US GDP data in focus, USD stronger

Even though the market is almost exclusively focussed on Trump and the implementation of its first presidential orders, investors are keeping an eye on US data, just to make sure that the momentum has not reversed. The first estimate of the fourth quarter’s GDP growth (2.2% median forecast versus 3.5% in Q4) is due for release at GMT 13:00, together with personal consumption (expected at 2.5% versus 3% in Q3). After a solid third quarter, US growth is expected to ease down in the December quarter amid faltering retail sales as oil prices took the elevator and against the backdrop of a rising US dollar. At worst, the US economy could stabilise slightly above 2% growth, while on the other there is substantial upside risk as Trump’s promise of a tax cut, together with infrastructure spending could help to boost household spending, which accounts for roughly 70% of GDP growth.

December durable goods orders are also due for release today and are expected to print at 2.5%m/m compared to a contraction of 4.5% in the previous month. The core measure, which excludes transportation, is anticipated to rise 0.5%m/m compared to 0.6% in November. Over the last 6-months, the trend has risen to an average increase of 0.6% per month. However, this improvement was mainly driven by stable demand for defence-related goods.

The US dollar is rallying for a second straight day after outperforming almost every currency on Thursday. The dollar index surged 0.60% yesterday as the Japanese yen slid 1.10%, the euro 0.60%, the kiwi 0.75% and the pound 0.30%. This morning it was up another 0.25% with the measure testing the 100.80 level ahead of the economic data. We expect the market to have a positive bias toward the US data as if it prints below estimates, the US economy can still hope that Donald Trump will fix it in the coming months.

US equity markets rally continues

Is this a never-ending increase or should we expect a correction in the near term? The Dow Jones has broken the widely awaited 20K mark, while the S&P hit 2300 points before bouncing lower.

If stocks are trading at record highs, this is not indicative of strong US fundamentals. For the time being, eagerness to better understand Trump’s policies is what is driving US equities. We confirm our standpoint that Trump now needs to deliver and it seems he will. Markets are being misled about the future effects of Trump’s Presidency and he now needs to provide far greater detail on this policies to support this rally.

The new president has also been critical of dollar strength in particular against the Chinese Yuan. And while the dollar index has surged back above 100$ we would start reloading bearish US dollar.

We must not forget that central banks are still in the game and that interest rates remain low, underpinning the asset bubble. US data is still not sufficient to trigger a rate hike, while its massive debt needs strong inflation to be killed.

Today’s Key Issues (time in GMT):

• janv..20 Money Supply Narrow Def, last 8.83t RUB / 08:00
• Nov Total Mortgage Lending YoY, last -3,70% EUR / 08:00
• Nov House Mortgage Approvals YoY, last 16,80% EUR / 08:00
• Dec Retail Sales YoY, last 4,00%, rev 3,90% EUR / 08:00
• Dec Retail Sales SA YoY, exp 3,20%, last 3,30%, rev 3,20% EUR / 08:00
• Jan Consumer Confidence, exp 103,6, last 103,2, rev 103 SEK / 08:00
• Jan Manufacturing Confidence s.a., exp 115, last 121,1, rev 120,9 SEK / 08:00
• Jan Economic Tendency Survey, exp 111,4, last 113,8, rev 113,7 SEK / 08:00
• Dec Household Lending YoY, last 7,20% SEK / 08:30
• Dec Retail Sales MoM, exp -0,30%, last 0,90%, rev 1,70% SEK / 08:30
• Dec Retail Sales NSA YoY, exp 3,50%, last 3,60%, rev 3,80% SEK / 08:30
• Dec M3 Money Supply YoY, exp 4,90%, last 4,80% EUR / 09:00
• Jan Economic Sentiment, last 100,3, rev 100,2 EUR / 09:00
• Jan Manufacturing Confidence, exp 103,3, last 103,5, rev 103,7 EUR / 09:00
• Jan Consumer Confidence Index, exp 110, last 111,1, rev 110,9 EUR / 09:00
• Dec Hourly Wages MoM, last 0,00% EUR / 10:00
• Dec Hourly Wages YoY, last 0,40% EUR / 10:00
• Jan FGV Construction Costs MoM, exp 0,29%, last 0,36% BRL / 10:00
• Nov House Price Index YoY, last 12,85% TRY / 11:30
• Nov House Price Index MoM, last 0,47% TRY / 11:30
• Dec Tax Collections, exp 124800m, last 102245m BRL / 12:30
• 4Q A GDP Annualized QoQ, exp 2,20%, last 3,50% USD / 13:30
• 4Q A Personal Consumption, exp 2,50%, last 3,00% USD / 13:30
• 4Q A GDP Price Index, exp 2,10%, last 1,40% USD / 13:30
• 4Q A Core PCE QoQ, exp 1,30%, last 1,70% USD / 13:30
• Dec P Durable Goods Orders, exp 2,50%, last -4,50% USD / 13:30
• Dec P Durables Ex Transportation, exp 0,50%, last 0,60% USD / 13:30
• Dec P Cap Goods Orders Nondef Ex Air, exp 0,20%, last 0,90% USD / 13:30
• Dec P Cap Goods Ship Nondef Ex Air, exp 0,50%, last 0,20% USD / 13:30
• Portugal Central Bank Governor Costa Speaks at a Conference EUR / 14:30
• Jan F U. of Mich. Sentiment, exp 98,1, last 98,1 USD / 15:00
• Jan F U. of Mich. Current Conditions, exp 112, last 112,5 USD / 15:00
• Jan F U. of Mich. Expectations, last 88,9 USD / 15:00
• Jan F U. of Mich. 1 Yr Inflation, last 2,60% USD / 15:00
• Jan F U. of Mich. 5-10 Yr Inflation, last 2,50% USD / 15:00

The Risk Today:

EUR/USD‘s momentum is still largely positive despite ongoing bearish consolidation. Hourly resistance is given by resistance implied by the upper bound of the uptrend channel around 1.0800. Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 low). Expected to see continued increase towards 1.0800. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD’s demand has largely increased towards 1.2771 fading around 1.2550. The technical structure is still anyway showing positive potential. Hourly support is given at 1.2254 (19/01/2016 low). Expected to show further bullish move. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY has surprisingly exited the downtrend channel after monitoring resistance implied by the upper bound. Hourly resistance is given at 115.62 (19/01/2016 high) while hourly support is given at 111.36 (28/11/2016 low). Expected to see further downside moves. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF’s momentum is clearly bearish. The pair has broken parity. Key resistance is given at a distance at 1.0344 (15/12/2016 high). The road is wide-open for further decline. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.