Quiet Day Ahead Of US Holiday

News and Events:

UK economy shows signs of weakness

The UK economy has weathered surprisingly well since the Brexit vote as economic data consistently surprises to the upside. However, dark clouds have started to gather on the horizon as the reality of Brexit becomes a major concern for businesses and consumers. January UK retail sales came in on the soft side with the headline gauge contracting 0.2%m/m versus an expected expansion of 0.7%. In addition, the previous month’s reading was downwardly revised to -2.2% from -2% initially estimated. Sales have been gloomy since December as retail customers brace for the Brexit shock. We do not expect this trend to improve in the short-term against the backdrop of rising inflation and growing concerns about the UK’s outlook outside of the European Union.

The pound sterling partially erased Friday’s losses this morning as it rose 0.55% against the greenback with GBP/USD hitting 1.2480. On the medium-term, the trend remains negative as traders are reluctant to take long positions before negotiations begin. According to CFTC data, net short speculative positioning remained stable last week at roughly 30% of total open interest. On the technical side, the strong resistance standing at 1.28 will continue to cap any upside gains, while on the downside, the 1.23-1.24 area will act as support.

Russian economic recovery continues

Russia’s unemployment rate will be released later today, which should increase to 5.4% from 5.3%. However, this rise should be viewed as a purely seasonal increase as unemployment in Russia tends to rise at this time of the year.

What really matters to us at the moment is the business environment and it seems that there is more confidence in the Russian economy since Trump’s election as relations between both nations thaw and even warm.

Commodity prices are also on the rise, which is definitely helping Russia, even though crude oil prices are stalling below $54. GDP expectations are at 0.6% for this year according to the Economic Development Ministry’s outlook. For the time being fundamental data is showing positive momentum. In particular, manufacturing and commodity production are increasing.

Currency-wise, the ruble has been strengthening for more than a year and we believe that this trend should continue over the year. Reloading the ruble’s position is a good trade. Our target is 50 ruble for one dollar by year-end.

Today’s Key Issues (time in GMT):

• Feb Consumer Confidence Indicator, last 4,5 DKK / 08:00
• Feb 17 Total Sight Deposits CHF, last 539.0b CHF / 09:00
• Feb 17 Domestic Sight Deposits CHF, last 464.5b CHF / 09:00
• Feb CBI Trends Total Orders, exp 4, last 5 GBP / 11:00
• Feb CBI Trends Selling Prices, last 28 GBP / 11:00
• Central Bank Weekly Economists Survey (Table) BRL / 11:25
• Jan Federal Debt Total, last 3113b BRL / 13:00
• Dec Wholesale Trade Sales MoM, exp 0,40%, last 0,20% CAD / 13:30
• FRB President Mester Speaks at Central Banking Series SGD / 14:15
• Bank of England Bond Buying Operation GBP / 14:50
• Feb A Consumer Confidence, exp -4,9, last -4,9 EUR / 15:00
• Feb 19 Trade Balance Weekly, last $956m BRL / 18:00
• Feb 19 ANZ Roy Morgan Weekly Consumer Confidence Index, last 116,4 AUD / 22:30
• Jan Formal Job Creation Total, exp -45324, last -462366 BRL / 23:00
• Jan Tax Collections, exp 137340m, last 127607m BRL / 23:00
• SURVEY: Private Capital Expenditure 2017-18 A$84.8b AUD / 23:00

The Risk Today:

EUR/USD is now consolidating above 1.0600. Hourly resistance is given at 1.0679 (16/02/2017 high). Expected to see further strengthening. 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 is still trading below strong resistance given at 1.2771 (05/10/2016 high). The technical structure suggests that the pair should bounce lower towards support given at 1.2254 (19/01/2016 low). 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‘s demand is fading after its increase from support given at 111.36 (28/11/2016 low). Bearish pressures arise around hourly resistance given at 115.62 (19/01/2016 high). The technical structure suggests further weakness. 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 short-term bullish momentum is back to bullish. The pair lies within an uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). Nonetheless, we believe that the pair is likely to strengthen again above parity. 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.