Euro Shrugs off Upbeat Confidence Data, EUR/USD Risks Deeper Pull Back

Despite a string of upbeat confidence data from Eurozone, Euro tumbles broadly today. Weaker than expected German retail sales could be a factor. Some also point to the risks of upcoming election in Italy. But it’s seen that the decline in Euro is due to recent loss in momentum, and the failure of EUR/USD to break through 1.2091 key resistance. On the other hand, the greenback is trying to regain some ground, together with the Japanese Yen. BoC business outlook survey is the only economic release in US session. Focus will be on speeches of Fed officials including Atlanta Fed Raphael Bostic and San Francisco Fed John Williams.

Eurozone Sentix had "astonishing" rise

Eurozone Sentix investor confidence rose to 32.9 in January, up from 31.1 and beat expectation of 31.3. Current situation index also hit the highest level in nearly a decade at 48. Sentix said that the rise is in confidence is "astonishing". However, it also warned of "danger of overheating" due to strong global momentum. It noted in the release that "particularly noteworthy is the USA, where investors are noticeably raising expectations. But latecomers such as Eastern Europe and Latin America can also improve considerably. The upswing is strong and increasingly synchronized." For Germany, the current situation index jumped to record high of 72.3, showing that "the economy has not yet missed a new government".

European Commission’s economic confidence rose to 116 in December, up from 114.6 and beat expectation of 114.8. That’s also the highest level since 2000. Industrial confidence rose to 9.1, up from 8.2, above expectation of 8.4. Services confidence rose to 18.4, up from 16.4, beat expectation of 16.5 Consumer confidence was finalized at 0.5. Business climate rose to 1.66, up from 1.49, beat expectation of 1.50.

Also from Europe, German retail sales dropped -0.4% mom in November. Swiss CPI was unchanged at 0.8% yoy in December.

UK PM May having third cabinet reshuffle

In UK, Prime Minister Theresa May is having her third cabinet reshuffle since becoming PMI back in 2016. This time, it’s triggered by sacking of Damian Green as first secretary of state due to sexual harassment. Some key figures are expected to stay, including Brexit Secretary David Davis, Chancellor of Exchequer Philip Hammond and Secretary of State for Foreign Affairs Boris Johnson. Also, it’s generally expected May would maintain the balance of anti- and pro-Brexit voices.

Aussie lower as government forecast 20% drop in iron ore price

Australian dollar tumbles today after Department of Industry, Innovation and Science said in the latest commodities outlook paper that iron ore price would drop 20% from 2017. The paper noted that "the iron ore price is expected to experience some ongoing volatility in early 2018, as the market responds to uncertainty regarding the impact of winter production restrictions on iron ore demand." But over the course course, there would be increase in global supply and moderation in demand from China. Iron ore is priced at around USD 75 a ton currently. Price averaged at around USD 64 in 2017. And Australia government expected it to drop to average USD 51.5 in 2018.

North and South Korea to meet tomorrow

In the upcoming Asian session, North Korea and South Korea will be holding their first high-level meeting in more than two years. The main topic of the meeting will be on participation of North Koreans in the Winter Olympic games to be held from February 9 in South Korean city of Pyeongchang. Talks were intiated after North Korea leader Kim Jong-un signaled his "earnestly wish" to participate. There is hope from the South that discussions could extend to topics on improve South-North tie.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2006; (P) 1.2044 (R1) 1.2068; More….

EUR/USD’s fall from 1.2088 extends lower today. Break of 4 hour 55 EMA argues that it’s rejected by 1.2091 key near term resistance. And, such decline could be the third leg of consolidation pattern from 1.2091. Intraday bias is turned to the downside for 38.2% retracement of 1.1553 to 1.2088 at 1.1884. Break of 1.1884 will target 61.8% retracement at 1.1757 and below. On the upside, firm break of 1.2091 is needed to confirm up trend resumption. Otherwise, we’d expect more corrective trading in near term.

In the bigger picture, rise from 1.0339 medium term bottom is still seen as a corrective move for the moment. Therefore, in case of another rally, we’d be expect 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 to limit upside and bring reversal. That is also close to 61.8% projection of 1.0569 to 1.2091 from 1.1553 at 1.2494.

Economic Indicators Update