Dollar Generally Higher as Stocks Markets Recovered

Dollar is generally firmer today, except versus Yen as global markets stabilized. At the time of writing, DAX is trading up 0.8%, CAC 40 up 0.6% and FTSE up 0.8%. US futures point to a slightly lower open but loss will be limited initial trading. Euro is also mildly firmer as sup[ported by positive news from EU. On the other hand, Aussie and Kiwi are trading as the weakest ones. In particular, Kiwi is back under some pressure ahead of tomorrow’s RBNZ rate decision.

EC upgrades Eurozone growth forecast

European Commission raised Eurozone growth forecast in today’s report. 2018 GDP is projected to grow 2.3%, up from November forecast of 2.1%. 2019 GDP is projected to grow 2.0%. For EU excluding UK, GDP growth is seen at 2.5% in 2018 and 2.1% in 2019. UK is projected to grow 1.4% in 2018. Eurozone inflation is projected to be at 1.5% in 2018 and 1.6% in 2019. Both figures are below ECB’s 2% target. EU economic affairs commissioner Pierre Moscovici said that "Europe’s economy has entered 2018 in robust health" and "growth is also more balanced than it was a decade ago."

Germany: Grand coalition deal finally agreed

German Chancellor’s CDU/CSU finally closed the deal with the SPD to reform the grand coalition government. That came after three days of "extra time" negotiations. A formal announcement will be made later today, including the details of the coalition. Next, SPD members are expected to vote on whether to accept the coalition agreement. The results of the vote are expected by March 4.

ECB Lautenschlaeger: Banks must be ready for Brexit

ECB Executive Board member Sabine Lautenschlaeger urged that "banks must be ready for Brexit; it will happen." And, "any bank that wishes to relocate from the UK to the euro area should really have submitted its license application already." Also, "if it hasn’t, it should do so by the end of the second quarter of 2018 at the latest." Regarding the so called transition period, Lautenschlaeger noted that "we cannot be sure whether the transition period will really happen".

On the data front

Canada building permits rose 4.8% mom in December. Swiss foreign currency reserves dropped to CHF 731b in January. German industrial production dropped -0.5% mom in December. Japan leading indicator dropped to 107.9 in December, labor cash earnings rose 0.7% yoy.

New Zealand job data won’t change RBNZ neutral stance

New Zealand employment rose 0.5% qoq in Q4, slowed from Q3’s 2.2% qoq but beat expectation of 0.4% qoq. Unemployment rate dropped to 4.5%, down from 4.6% and was better than expectation of 4.7%. The unemployment rate was also the lowest in 9 years since 2008. The news is certainly welcomed by RBNZ ahead of the rate decision on Thursday. Nonetheless, no one is expecting any change to the 1.75% official cash rate. There is however a risk that RBNZ would try to talk down the exchange rate after recent appreciations.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2315; (P) 1.2374 (R1) 1.2436; More….

EUR/USD weakens mildly in early US session. But after all, it’s staying in consolidation pattern from 1.2537 and intraday bias remains neutral. As long as 1.2222 support holds, further rise is in favor. Sustained break of 1.2494/2516 will target 100% projection of 1.0569 to 1.2091 from 1.1553 at 1.3075 next. However, break of 1.2222 will indicate rejection from 1.2494/2516, on bearish divergence condition in 4 hour MACD, and turn near term outlook bearish for 1.1915 support first.

In the bigger picture, rise from 1.0339 medium term bottom is still seen as a corrective move for the moment. But key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 is looking vulnerable. Sustained break of 1.2516 will carry larger bullish implication and target 61.8% retracement of 1.6039 to 1.0339 at 1.3862. Nonetheless, rejection from 1.2516 will maintain long term bearish outlook and keep the case for retesting 1.0039 alive.

Economic Indicators Update