Pound Higher on Labor News – 22 January 2019

News that the UK labor market was stronger than had been predicted helped to briefly lift the Pound Sterling out of the doldrums. According to the UK Office of National Statistics, the average earnings including bonus for the three month period through to November 2018 rose to 3.4%, slightly better than the flat rate of 3.3% which has been predicted. At the same time, the ILO’s unemployment rate unexpectedly fell to 4.0% from 4.1%, while forecasters had believed that the rate would remain unchanged. That helped to improve Pound sentiment, especially given the uncertainty over the looming Brexit and the current economic slowdown.

As reported at 11:32 am (GMT) in London, the GBP/USD was trading higher at $1.2908, a gain of 0.10% and off the session peak of $1.2928. The EUR/GBP was lower at 0.8799 Pence, down 0.18% and off the session trough of 0.87912 Pence while the high was pegged at 0.88286 Pence.

Hopes Pinned on Market-friendly Brexit

Currency strategists have been holding out hope that the Prime Minister will be able to push some sort of a deal through on the Brexit; the threat of a no-deal was seen as the most devastating of all possible outcomes. Theresa May is likely to agree to additional concessions in an effort to put an agreement on the table that the British Parliament will finally approve. FX traders still feel that a market-friendly outcome is possible, but the threat of crashing out entirely without a plan has not been completely dismissed.

Markets Struggle with Trade Uncertainty – 23 January 2019

Asian markets were trading mixed on Wednesday afternoon, as traders remained cautious in the face of continued trade tensions between the United States and China. According to reports from CNBC, Washington has declined a trade planning meeting with China that was expected to be scheduled for this week. The report claims that the meeting was cancelled due to lingering disagreements about intellectual property rules. Another meeting is expected to be held at the end of the month, in the hopes of advancing a mutually-agreeable trade agenda that will be confirmed before the March 1 deadline after which U.S. President Donald Trump has said that he will implement new tariffs.

South Korea’s Kopsi was trading up 0.31 percent as of 2:29 p.m. HK/SIN on Wednesday, and China’s Shenzhen Composite was up 0.09 percent. All other major indexes were trading lower. The Shanghai Composite was down 0.14 percent, Australia’s ASX 200 was down 0.26 percent and Japan’s Nikkei 225 was down 0.14 percent. The losses in Japan were tempered by the lower yen.

The mixed trading in Asia came after all three major Wall Street indexes closed down on Tuesday.

Currency Movements

The U.S. dollar soared 0.29 percent against the yen on Wednesday, trading at 109.68. The yen also fell 0.5 percent against the Australian dollar. The Bank of Japan announced on Wednesday that it would be keeping monetary policy stable, and it trimmed its inflation forecast due to a larger-than-expected decline in December exports which highlighted the need to continue supporting the economy.

The dollar index was trading flat on Wednesday afternoon in Asia, with the greenback gaining modestly against the dollar but losing ground against the euro.

Yen Broadly Higher on Growth Fears

The US Dollar held close to a 2-week peak versus its key rivals as worries grow over the news that the Chinese economy has slowed to a 28-year low. That news pushed FX traders toward safe haven currencies, with the Japanese Yen being the prime beneficiary of investor sentiment. In support of those concerns, the International Monetary Fund yesterday lowered its global growth forecasts for this year and the next, specifically citing the growth slowdown in China as well as the Eurozone. They further commented that the resolution to the trade tensions was vital in order to prevent further destabilization of the global economies.

As reported at 10:56 am (JST) in Tokyo, the USD/JPY was trading at 109.518 Yen, a loss of 0.0949%; the pair is moving off the session trough of 109.498 Yen. The EUR/JPY is lower at 124.513 Yen, down 0.10%; the pair has ranged from 124.500 Yen to 124.7410 Yen. The GBP/JPY is also lower at 141.178 Yen, down 0.10%, and just a few pips off the earlier low of 141.167 Yen.

Dollar Outlook Uncertain

The slowdown in China and the impact on global growth has led to speculation that the Federal Reserve Bank might also call a halt to its tightening cycle. One currency strategist in Tokyo said that that is likely to result in a softer US Dollar which, as of now, is over-valued based on the fundamentals.

Market Movers for January 22, 2019 – 22 January 2019

On Tuesday, January 22, 2019, the markets will be concerned with the release of economic calendar data, which usually results in changes in price movements. The economic agenda is a key tool for the fundamental analysis of the news to predict the performance of the markets. Therefore, caution must be taken to determine the results of these actual data to make the right decision in trading.

UK Payroll: Total British wages, including bonuses, rose at an annualized rate of 3.3 percent to £528 a week for three months prior to October last year, after adjusting the figure for the previous period up to a gain of 3.1 percent. Analysts’ estimates exceeded 3.0 percent. Total wages rose at the fastest rate in three months to July 2008. Pay growth in the private and service sectors increased. However, it has advanced at the same rate in construction, retail, wholesale, hotels and restaurants. In the public sector and manufacturing industries, wage growth slowed.

Excluding bonuses, wages rose 3.3 percent to £495 a week, the highest rate since the end of 2008, after a 3.2 percent increase in the previous period. This was in line with analysts’ expectations. In terms of real value, wages including bonuses rose by 1.1 percent, while wages excluding bonuses rose by 1.0 percent.

The wage growth forecast for the three months to November 2018: 3.3 percent.

New Zealand Consumer Price Index: Consumer prices rose 0.9 percent in the third quarter of last year and 1.9 percent year-on-year. Analysts had expected inflation to rise to 0.7 percent in the quarter and 1.7 percent year-on-year in the third quarter of 2018. This figure is slightly lower than the RBNZ target of 1.0 percent to 3.0 percent. The increase was supported by transportation, residential and household facilities, residential rents, construction sectors and food prices.

Expectations for the fourth quarter of last year: consumer prices are expected to remain unchanged.

BOE’s Broadbent: ‘Puzzling’ that UK debt is unsustainably high

BOE’s Broadbent: ‘Puzzling’ that UK debt is unsustainably high

BOE MPC member Ben Broadbent speaks on debt in London

  • Debt growth is a better risk indicator than debt level
  • Neutral rate of interest more likely to rise than fall in the future

ForexLive

Whether or not debt growth is a better indication of risk in the financial system, debt level is something that shouldn’t be overlooked either. I’m sure he’s just trying to play down the risks pertaining to the issue but this isn’t the best way to go about it in my view.

Either way, there’s nothing else in his speech that touches on monetary policy. The full text can be found
here.
Recap: BOJ cuts inflation outlook, nothing new from Kuroda

Recap: BOJ cuts inflation outlook, nothing new from Kuroda

In case you missed out on the earlier happenings with the BOJ today

BOJ Bank of Japan

The softer inflation forecasts aren’t entirely unexpected given the trend in inflationary pressures in Japan. As mentioned earlier, the core CPI reading for December 2018 as seen last week was +0.3% y/y and that highlights a decline from the +0.5% y/y reading in February 2018. It basically underlines that inflation isn’t really going anywhere in Japan despite tighter labour market conditions over the past few months.

What that means in the bigger picture is that the BOJ is still in search for a solution to bring up inflationary pressures and in the meantime, don’t expect them to make big/major changes to monetary policy until they are able to identify said solution – which may never happen.

Although Kuroda attempted to brush aside today’s changes by attributing it to weaker oil prices and noting that it was just temporary, it is very much his job to stay optimistic and keep a confident front. Deep down, you can’t really fault him if he actually doesn’t believe that they will be able to hit the 2% inflation target during his second term. I mean, pretty much everybody else in the world doesn’t at this point.

Moscovici: Risk of a no-deal Brexit has increased in the last few weeks

Moscovici: Risk of a no-deal Brexit has increased in the last few weeks

Moscovici comments on Brexit in Davos

  • Up to the British to tell the EU where they want to go
  • EU is ready and waiting
  • Nobody wants a no-deal outcome, need to explore all options

ForexLive

Despite his view, markets are mainly taking the opposite stance in believing that a no-deal outcome is seen further away now and that has helped to lift the pound off lower levels from the start of the month.

If you’re wondering about his comment here, he’s basically just highlighting that there won’t be any renegotiation of the current agreement if that is what May is looking to angle for by extending Article 50. Hence, the only other way is either no Brexit or a no-deal option. At least, that’s what is in the EU’s book of options.

GBP/USD looks towards the 1.30 handle once again

GBP/USD looks towards the 1.30 handle once again

Cable hits a session high of 1.2985

GBP/USD H1 23-01-2019

ForexLive

The pound is gaining some poise on the day – much like it has since the start of the week – and cable looks to threaten a move towards the 1.3000 handle once again now. After stabilising around 1.2950 since overnight trading, this feels like the kind of price action where we’ll see a sudden quick pop above the figure handle.

It’s still all about Brexit for the pound and although there aren’t any fresh leads on where things may end up just yet, what markets are expecting is that a no-deal outcome is seen less likely to happen now and that’s enough of a reason for the pound to stay underpinned.

EUR/USD: Sellers maintain near-term control but key support levels still holding firm

EUR/USD: Sellers maintain near-term control but key support levels still holding firm

EUR/USD continues its sluggish price action under the 100-hour moving average

EUR/USD H1 23-01-2019

ForexLive

Sellers are still in near-term control but things are moving rather slow in the pair as price action ping pongs between key support levels and resistance near the 100-hour MA (red line). The trading range today is a measly 18 pips so far between 1.1354 and 1.1372.

The line in the sand right now is the 100-hour MA as sellers continue to defend the downside move since last week. However, right now price is running into key support levels around 1.1338-50 but also the trendline support from the daily chart:

EUR/USD D1 23-01-2019

Price is squeezing into an area where eventually either the support levels break or sellers run out of steam once again. And much like the trading range for the pair since November, price is still continuing to sit between the 1.13 and 1.15 range after the false break at the start of the month.

Should the key support levels above give way, a test of the 1.1300 handle will be called into question again. There isn’t much in terms of headlines to really move either currency so far and risk sentiment remains rather tepid to start the day. However, the calendar day ahead looks to be a bit of a bore so it will depend on changes in risk to spark a move in EUR/USD and we might have to wait until US trading for that to materialise.

UK’s Fox: Irish backstop is the stumbling block to a Brexit deal

UK’s Fox: Irish backstop is the stumbling block to a Brexit deal

Further comments by UK trade minister Liam Fox

  • Says that Theresa May understands strength of feeling on backstop
  • Says May is talking to EU to find an alternative to the backstop
  • Technology could be a way to avoid hard border in Ireland

ForexLive

This feels like a copy-and-paste statement from last September, does it not? Goes to show the amount of progress made in between then and now. 65 days to go. Tick tock, tick tock.