Market News & Insights
10 January 2018

Slight Risk Aversion to Start Wednesday

News from Asia appears to be leading market direction at the moment. We mentioned yesterday that the BOJ announced they would be looking to taper their bond purchases and the result was a rally in JPY, while the Nikkei dropped, the BOJs main target is to maintain their yield curve objective and the concern in markets is that the BOJ will be next in line to end their ultra-loose monetary policy stance. In China details emerged that the PBOC (People’s Bank of China) changed the criteria for calculating their daily fix, suspending counter-cyclical factors that they put in place last year to maintain CNH weakness, this likely accounting for the firmer CNH we’ve seen since mid-December.

Aside from heavy losses vs the yen, the USD was trading firmer through much of the day, rising yields on the 10 year bond helping USD demand but the greenback stalled ahead of major resistance, with EURUSD failing to extend losses down towards 1.2000, while GBPUSD failed to drop below 1.3500, the result was an inevitable bounce overnight. General risk appetite remained well supported through yesterday with major European bourses pressing higher, while in the US record highs were once again achieved. This positivity has dwindled overnight however. Overnight the delayed response to the BOJ news and a stronger JPY through yesterday saw a selloff in the Nikkei, which in turn fed through to a firmer JPY as a favoured risk aversion currency. This sentiment has fed through to this morning’s session, with most major European bourses in the red.

Yesterday the euro traded lower across the board, losses were heaviest vs the JPY, but EURUSD and EURGBP both faced declines through the day. This was despite German data beating expectations with firmer Industrial production and trade balance data from Europe’s core adding little to the resolve of the single currency. Eurozone unemployment remained at 8.7% and while this is still a long way from the US and UK, the metrics are assessed differently.

There’s nothing on today’s Eurozone docket that will provide much to get excited about, so we will all eagerly anticipate tomorrow’s ECB minutes which should really set some direction for the single currency. Aside from industrial production for the region, we also have German GDP figures. EURUSD has support just above 1.1900, while 1.2010/15 area should provide light resistance with three year highs towards 1.2091 offering euro sellers resistance. EURGBP held just above .8800, while any progress towards .8900 area will likely find sellers.

GBP may find some direction from a host of data due for release today. Industrial production is expected to have slowed from 3.6% to 1.8% year on year, manufacturing production is expected to have slowed from 3.9% to 2.8%. Construction Output is still expected to be contracting while trade balance data is expected to have deteriorated as well. This downbeat view of the UK economy is likely the reason we have seen some slight GBP weakness thus far this morning, however that does leave some scope for the pound to rally on any better than expected data, with manufacturing broadly stronger since the Brexit vote this probably offers the best opportunity. There will be no major shift in GBP outlook from these data points however, ranges remain in place and the larger one in .8730/60 are up to .9020. Brexit progress will be the real driver for anything GBP related. While GBPUSD is looking at 1.3500 support and resistance topside towards 1.3590/1.3600 area.