Sterling surges broadly today after BoE left interest rates unchanged at 0.75%. Only two policymakers, the usual ones, voted for a cut, without additional dove. Swiss Franc and Yen follow as next strongest on coronavirus fears. An Italian cruise ship with 7000 people is held off the coast for coronavirus check, after a Chinese passenger reported fever. Commodity currencies are the weakest on risk aversion.
Technically, EUR/GBP rejection by 0.8487 minor resistance retain near term bearishness. Focus is on 0.8386 temporary low and break will target 0.8276 key support. GBP/USD recovers but it’s held well below 1.3174 minor resistance so far, as sideway consolidation is probably extending as a triangle. EUR/USD lost downside momentum ahead of 1.0981 near term support and some consolidations might be seen first, with mild recovery.
In Europe, currently, FTSE is down -1.36%. DAX is down -1.14%. CAC is down -1.51%. German 10-year yield is down -0.017 at -0.392. Earlier in Asia, Nikkei dropped -1.72%. Hong Kong HSI dropped -2.62%. Singapore Strait Times dropped -0.37%. Japan 10-year JGB yield dropped -0.0185 to -0.054.
US GDP grew 2.1% annualized in Q4, initial jobless claims dropped to 216k
US GDP grew at annualized rate of 2.1% in Q4, unchanged from prior quarter, matched expectations. There were positive contributions from personal consumption expenditures (PCE), federal government spending, state and local government spending, residential fixed investment, and exports. Part were offset by negative contribution from private inventory investment and nonresidential fixed investment. Imports decreased.
Initial jobless claims dropped -7k to 216k in the week ending January 25, slightly better than expectation of 218k. Four-week moving average of initial claims dropped -1.75k to 214.5k. Continuing claims dropped -44k to 1.703m in the week ending January 18. Four-week moving average of continuing claims dropped -6.25k to 1.756m.
BoE keeps Bank Rate unchanged at 0.75%, by 7-2 vote
BoE left Bank Rate unchanged at 0.75% on 7-2 vote. Jonathan Haskel and Michael Saunders voted for a 25bps cut, for the third straight meeting. Asset purchase target is held at GBP 435B on unanimous vote.
In the accompanying statement, the central bank noted that “policy may need to reinforce the expected recovery in UK GDP growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak”.
Though, “further ahead, if the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy may be needed to maintain inflation sustainably at the target.”
Eurozone economic sentiment rose to 102.8 on industry and construction
Eurozone Economic Sentiment Indicator rose to 102.8 in January, up form 1013, beat expectation of 102.0. That was a result of marked improvement in confidence in industry (up 2.0 to -7.3) and construction (up 1.2 to 6.9). Services confidence was virtually unchanged (down -0.3 to 11.0.
Amongst the largest euro-area economies, the ESI rose strongly in Germany (+2.0) and France (+1.5), while it remained broadly stable in the Netherlands (-0.3) and Italy (-0.1) and decreased in Spain (-1.0)
Business Climate Indicator rose to -0.23, up from -0.32, beat expectation of -0.26.
Eurozone unemployment rate dropped to 7.4%, lowest since 2008
Eurozone unemployment rate dropped to 7.4% in December, down from 7.5% and beat expectation. That’s also the lowest level since May 2008. EU28 unemployment was at 6.2%, down from 6.3%.
Among the Member States, the lowest unemployment rates in December 2019 were recorded in Czechia (2.0%) as well as in Germany and the Netherlands (both 3.2%). The highest unemployment rates were observed in Greece (16.6% in October 2019) and Spain (13.7%).
Swiss KOF rose to 100.1, Swiss economy free somewhat from its shackles
Swiss KOF Economic Barometer rose to 100.1 in January, up from 96.4, beat expectation of 96.5. The reading is higher than any levels reported back in 2019. KOF said “the Swiss economy can free itself somewhat from its shackles”.
“The indicator bundle for manufacturing is no longer as unfavourable as before and the prospects for other services have improved. In addition, the changes in the indicators for foreign demand, accommodation and food service activities, financial and insurance services and construction are slightly positive. The private consumption prospects are practically unchanged.”
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.2995; (P) 1.3012; (R1) 1.3035; More…
GBP/USD rebounds strongly today but it’s held below 1.3174 resistance so far. Intraday bias is turned neutral first. On the downside, break of 1.2977 will target 1.2905 low. break there will extend the correction from 1.3514. On the upside, break of 1.3174 resistance will turn bias to the upside for 1.3284 resistance instead.
In the bigger picture, rise from 1.1958 medium term bottom is expected to extend higher to retest 1.4376 key resistance. Reactions from there would decide whether it’s in consolidation from 1.1946 (2016 low). Or, firm break of 1.4376 will indicate long term bullish reversal. In any case, for now, outlook will stay bullish as long as 1.2582 resistance turned support holds.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 21:45 | NZD | Trade Balance (NZD) Dec | 547M | 100M | -753M | -791M |
| 00:30 | AUD | Import Price Index Q/Q Q4 | 0.70% | 0.40% | 0.40% | |
| 08:00 | CHF | KOF Leading Indicator Jan | 100.1 | 96.5 | 96.4 | |
| 08:55 | EUR | Germany Unemployment Change Dec | -2K | 5K | 8K | |
| 08:55 | EUR | Germany Unemployment Rate Dec | 5% | 5% | 5% | |
| 10:00 | EUR | Eurozone Unemployment Rate Dec | 7.40% | 7.50% | 7.50% | |
| 10:00 | EUR | Eurozone Economic Sentiment Jan | 102.8 | 102 | 101.5 | 101.3 |
| 10:00 | EUR | Eurozone Business Climate Jan | -0.23 | -0.26 | -0.25 | -0.32 |
| 10:00 | EUR | Eurozone Industrial Confidence Jan | -7.3 | -9 | -9.3 | |
| 10:00 | EUR | Eurozone Consumer Confidence Jan | -8.1 | -8.1 | -8.1 | |
| 10:00 | EUR | Eurozone Services Sentiment Jan | 11 | 12.2 | 11.4 | 11.3 |
| 12:00 | GBP | BoE Rate Decision | 0.75% | 0.75% | 0.75% | |
| 12:00 | GBP | BoE Asset Purchase Target Jan | 435B | 435B | 435B | |
| 12:00 | GBP | MPC Official Bank Rate Votes | 0–2–7 | 0–3–6 | 0–2–7 | |
| 12:00 | GBP | MPC Asset Purchase Facility Votes | 0–0–9 | 0–0–9 | 0–0–9 | |
| 13:00 | EUR | Germany CPI M/M Jan P | -0.60% | -0.70% | 0.50% | |
| 13:00 | EUR | Germany CPI Y/Y Jan P | 1.70% | 1.70% | 1.50% | |
| 13:30 | USD | Initial Jobless Claims (Jan 24) | 216K | 218K | 211K | 223K |
| 13:30 | USD | GDP Annualized Q4 P | 2.10% | 2.10% | 2.10% | |
| 13:30 | USD | GDP Price Index Q4 P | 1.40% | 1.90% | 1.80% | |
| 15:30 | USD | Natural Gas Storage | -197B | -92B |
