The forex markets are generally steady today, staying in prior day’s range. Dollar and Sterling remain the two weakest major currencies for the week while Yen is strong together with Aussie and Kiwi. Released from US, retail sales rose 0.6% in December, missing expectation of 0.7%. Ex-auto sales rose 0.2%, also missed expectation of 0.5%. Headline PPI rose 0.3% mom, 1.6% yoy in December, accelerated from November’s 1.3% yoy and meets expectation. PPI core rose 0.2% mom, 1.6% yoy, unchanged from November’s 1.6% yoy and above expectation of 1.6% yoy.
BoE policy maker Michael Saunders said that "economic growth has recently been stronger than expected." And he expects unemployment rate to stay below 5% this year, comparing to a rise as projected in the November inflation report. However, he said that wage is unlikely to growth strongly and won’t add to extra inflation pressure for UK. Still, weak Sterling would still push inflation to above 2% this year. In Eurozone, German finance minister Wolfgang Schaeuble said that "the European Central Bank will have the tough task of getting out of the ultra-expansionary monetary policy." And, "it would presumably be right if the ECB dared to exit this year".
China’s trade surplus narrowed to US$40.8B in December from USD44.6B a month ago. From a year ago, exports contracted -6.1% y/y, deteriorating from a -1.6% drop in November, while imports growth decelerated to +3.1%, from November’s expansion of +13%. Both contraction in exports and expansion in imports came in worse than expectations. We are concerned that rising oil prices would continue to weigh on the country’s balance of payment given China’s huge crude oil imports. Released last week, the country’s FX reserve was reported to have dropped -US$41B, to US$3.01 trillion, in December. Similar to the past 5 months, the decline was driven by government’s selling of foreign currencies to moderate renminbi depreciation More in China Watch: Soaring Oil Prices Weighed On Trade Surplus Whilst Lifted PPI.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.2104; (P) 1.2210; (R1) 1.2268; More…
GBP/USD is staying in range of 1.2036/2432 and intraday bias remains neutral first. Deeper fall is still expected as long as 1.2432 resistance holds. Below 1.2036 will target a test on 1.1946 low first. Decisive break there will confirm our bearish view and resume the larger down trend. However, break of 1.2432 will suggest that consolidation pattern from 1.1946 is extending with another rise.
In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:50 | JPY | Japan Money Stock M2+CD Y/Y Dec | 4.00% | 4.10% | 4.00% | 3.90% |
| 02:55 | CNY | Trade Balance (USD) Dec | 40.8B | 47.6B | 44.6B | |
| 02:55 | CNY | Trade Balance (CNY) Dec | 335B | 345B | 298B | |
| 13:30 | USD | PPI M/M Dec | 0.30% | 0.30% | 0.40% | |
| 13:30 | USD | PPI Y/Y Dec | 1.60% | 1.60% | 1.30% | |
| 13:30 | USD | PPI Core M/M Dec | 0.20% | 0.10% | 0.40% | |
| 13:30 | USD | PPI Core Y/Y Dec | 1.60% | 1.50% | 1.60% | |
| 13:30 | USD | Advance Retail Sales Dec | 0.60% | 0.70% | 0.10% | 0.20% |
| 13:30 | USD | Retail Sales Less Autos Dec | 0.20% | 0.50% | 0.20% | 0.30% |
| 15:00 | USD | Business Inventories Nov | 0.50% | -0.20% | ||
| 15:00 | USD | U. of Michigan Confidence Jan P | 98.5 | 98.2 |
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