Aline Schuiling, senior economist at ABN AMRO, points out that Eurozone’s wage growth has picked up since the start of 2018, in spite of the fact that there is still slack in the labour market.
“Compensation per employee rose by 2.5% yoy in 2018Q3, up from 1.9% in 2017Q4. Considering that real wages contracted in 2017 due to an unexpectedly sharp rise in the headline inflation rate on the back of higher energy prices, we think that the pick-up in nominal wage growth since the start of 2018 merely was compensation for this.”
“Consequently, we expect nominal wage growth to decline somewhat in 2019. Nevertheless, it should remain higher than the inflation rate. An early indicator for somewhat slower wage growth seems to be that growth in negotiated wages (which according to comments made by ECB President Mario Draghi is the ECB’s preferred measure of wage growth) edged lower from 2.2% in 2018Q2 to 2.1% in 2018Q3.”
• The cross showed some resilience below 100-hour EMA and for the second straight session managed to find decent support near the 140.70-60 horizontal zone.
• Slightly better-than-expected UK wage growth data and an unexpected downtick in the UK unemployment rate provided a minor lift to the British Pound.
• Technical indicators on the 1-hourly chart regained positive traction and continue to hold in the bullish territory on 4-hourly/daily charts, supporting bullish bias.
• A follow-through up-move beyond the overnight swing high, around mid-141.00, will reinforce the constructive set-up and pave the way for additional intraday gains.
• However, a convincing break below the mentioned support might negate the positive outlook and prompt some aggressive long-unwinding trade amid Brexit uncertainties.
GBP/JPY 1-hourly chart
Today Last Price: 141.17
Today Daily change %: -0.18%
Today Daily Open: 141.42
Daily SMA20: 139.47
Daily SMA50: 142.11
Daily SMA100: 144.45
Daily SMA200: 145.48
Previous Daily High: 141.54
Previous Daily Low: 140.69
Previous Weekly High: 142.22
Previous Weekly Low: 137.36
Previous Monthly High: 145.52
Previous Monthly Low: 138.86
Daily Fibonacci 38.2%: 141.21
Daily Fibonacci 61.8%: 141.01
Daily Pivot Point S1: 140.89
Daily Pivot Point S2: 140.37
Daily Pivot Point S3: 140.04
Daily Pivot Point R1: 141.75
Daily Pivot Point R2: 142.07
Daily Pivot Point R3: 142.6
• Wages excluding bonuses rose by 3.3% 3m/y compared to 3.3% expected.
• Wages including bonuses rose by 3.4% 3m/y compared to 3.3% expected.
• The UK unemployment rate unexpectedly ticks lower to 4.0% in November.
The Office for National Statistics (ONS) showed on Tuesday, the UK’s average weekly earnings, excluding bonuses, matched expectations and arrived at 3.3% 3m/y versus 3.3% last. Meanwhile, the gauge including bonuses bettered expectations and came in at 3.4% 3m/y as against 3.3% 3m/y previous.
The Kingdom’s official jobless rate unexpectedly ticked down to 4.0% in November, while the claimant count change showed a bigger-than-expected increase. The number of people claiming jobless benefits rose by 20.8K in December as against expectations of a 20.0K increase and an upwardly revised reading of 24.8K seen previously.
- Cable regains the composure following UK jobs report.
- The pair clinches fresh daily highs above the 1.2900 mark.
- UK Claimant Count Change rose by 20.8K in December.
The Sterling is deriving some support from the better-than-expected labour market figures today and is lifting GBP/USD beyond 1.2900 the figure, or daily highs.
GBP/USD bid on data, looks to Brexit
Cable gained extra ground following the publication of the monthly report on the UK labour market. In fact, Claimant Count Change rose by 20.8K in December, the key Average Earnings including Bonus rose 3.4% in November and the jobless rate ticked lower to 4.0% during the same period.
Looking ahead, developments around Brexit, as always, will dictate the sentiment around the British Pound. In this regard, and following PM May’s ‘Plan B’ released on Monday, investors will now focus on the probable amendments to it, a potential extension of Article 50, the ‘no deal’ scenario, the likeliness of a second referendum or the option involving a permanent customs union. It is worth recalling that the Parliament will vote again on January 29.
GBP/USD levels to consider
As of writing, the pair is up 0.07% at 1.2901 facing the next resistance at 1.3000 (2019 high Jan.17) seconded by 1.3072 (high Nov.14 2018) and then 1.3087 (200-day SMA). On the other hand, a breach of 1.2830 (low Jan.21) would expose 1.2779 (55-day SMA) and finally 1.2766 (21-day SMA).
Karen Jones, analyst at Commerzbank, explains that the USD/MXN bounced off the 2018-19 support line at 18.8762 towards the August high and the 200 day moving average at 19.3747/4468.
“Minor resistance above the 200 day moving average at 19.4468 comes in at the 19.6855 September high with still further resistance being seen along the 55 day moving average at 19.9287.”
“Key resistance remains to be seen at the 20.4720/6574 October-to-December highs.”
“Below the current January low at 18.8787 lie the mid-October low at 18.7312 and the August and October troughs at 18.5017/4052. This area we expect to hold, if it were to be retested anytime soon.”
- The greenback is extending its upside momentum so far this week, retaking the mid-96.00s and opening the door for a potential move higher in the short-term horizon.
- DXY has quickly reverted Monday’s retracement and has now resumed the upside to fresh 3-week tops near 96.50.
- Extra gains should face interim hurdle at the 55-day SMA, today at 96.60, ahead of the 23.6% Fibo retracement of the September-December up move at 96.79.
DXY daily chart
Dollar Index Spot
Today Last Price: 96.37
Today Daily change: 0.03 pips
Today Daily change %: 0.03%
Today Daily Open: 96.34
Daily SMA20: 96.15
Daily SMA50: 96.64
Daily SMA100: 96.08
Daily SMA200: 95.05
Previous Daily High: 96.43
Previous Daily Low: 96.21
Previous Weekly High: 96.4
Previous Weekly Low: 95.47
Previous Monthly High: 97.71
Previous Monthly Low: 96.06
Daily Fibonacci 38.2%: 96.35
Daily Fibonacci 61.8%: 96.29
Daily Pivot Point S1: 96.22
Daily Pivot Point S2: 96.11
Daily Pivot Point S3: 96
Daily Pivot Point R1: 96.44
Daily Pivot Point R2: 96.55
Daily Pivot Point R3: 96.66
German ZEW Survey Overview
The ZEW will release its German Economic Sentiment Index and the Current Situation Index at 1000 GMT in the EU session later today, reflecting institutional investors’ opinions for the next six months.
The headline economic sentiment index is expected to fall to -18.4 in January as against an unexpected recovery to -17.5 in the previous month. Meanwhile, the current situation sub-index is also likely to decelerate further to 43.5 versus 45.3 recorded in December.
How could affect EUR/USD?
A surprisingly positive headline reading might prompt some short-covering bounce and assist the pair to make a fresh attempt towards reclaiming the 1.1400 handle. However, a bigger-than-expected drop would further dent the already weaker sentiment surrounding the shared currency and pave the way for an extension of the pair's near-term bearish trajectory.
FXStreet´s own Analyst, Yohay Elam writes: "Initial support awaits at 1.1345 which is the fresh low and also the low point around Christmas. 1.1310 was the swing low at the wake of the new year. Further down, 1.1270 is a double bottom after halting the falls in December. 1.1215 is the 2018 low."
"Looking up, 1.1380 was the initial low after the pair lost 1.1400. 1.1410 is significant resistance after rejecting recovery attempts. This price also coincides with the 200 SMA. 1.1450 served as support early in January. 1.1480 was a swing high before the recent falls," Yohay adds.
• Germany: Focus on ZEW figures today – TDS
• EUR/USD Forecast: Looks to confirm a bearish breakdown ahead of Thursday's ECB decision
• EUR/USD Technical Analysis: Scope for extra downside. Target remains at 1.1300 and below
About German ZEW
The Economic Sentiment published by the Zentrum für Europäische Wirtschaftsforschung measures the institutional investor sentiment, reflecting the difference between the share of investors that are optimistic and the share of analysts that are pessimistic. Generally speaking, an optimistic view is considered as positive (or bullish) for the EUR, whereas a pessimistic view is considered as negative (or bearish).
Aline Schuiling, senior economist at ABN AMRO, suggests that their outlook for the global economy and world trade suggest that Eurozone exports will continue to contract in 2018Q4-2019Q1 and grow modestly thereafter.
“Importantly, we expect policymakers to facilitate a modest recovery in world trade growth. The FOMC seems less fixed on further interest rate hikes, the ECB may keep interest rates on hold for even longer, while China’s policymakers have stepped up stimulus. Moreover, we have assumed that there will be no escalation of protectionism, although uncertainty related to protectionism will continue to linger.”
“As the trade-weighted exchange rate of the euro has been moving in a narrow range since the summer of 2017, it is not expected to have a significant impact on competitiveness or trade flows. All in all, we expect net exports to reduce overall GDP growth by around 0.3pps in 2019.”
- EUR/JPY is extending its consolidative theme so far this year following the ‘flash crash’ on January 3 to sub-119.00 levels.
- The cross, however, faces a formidable resistance in the 125.00 area, reinforced by August 2018 low (124.91) and the 21-day SMA at 124.80.
- Below this hurdle the cross is expected to extend the sideline theme although the likelihood of a leg lower remains well on the cards with immediate target at 123.31 (low January 15).
EUR/JPY daily chart
Today Last Price: 124.3
Today Daily change: -0.40 pips
Today Daily change %: -0.32%
Today Daily Open: 124.7
Daily SMA20: 124.8
Daily SMA50: 126.92
Daily SMA100: 128.4
Daily SMA200: 128.97
Previous Daily High: 124.83
Previous Daily Low: 124.51
Previous Weekly High: 124.98
Previous Weekly Low: 123.39
Previous Monthly High: 129.3
Previous Monthly Low: 125.36
Daily Fibonacci 38.2%: 124.71
Daily Fibonacci 61.8%: 124.63
Daily Pivot Point S1: 124.53
Daily Pivot Point S2: 124.36
Daily Pivot Point S3: 124.2
Daily Pivot Point R1: 124.85
Daily Pivot Point R2: 125.01
Daily Pivot Point R3: 125.18
• Fails to capitalize on the overnight uptick led by the UK PM May’s Brexit Plan B.
• The global flight to safety underpins USD and exerts some downward pressure.
• Downside remains limited ahead of the UK jobs report/wage growth data.
The GBP/USD pair held on to its softer tone through the early European session and refreshed daily lows in the last hour, albeit quickly recovered few pips thereafter.
Worries over global growth boosted the US Dollar's perceived safe-haven demand and turned out to be one of the key factors failing to assist the pair to capitalize on the previous session’s goodish rebound from the 1.2830 support area.
The overnight up-move came after the UK PM Theresa May's Brexit Plan B, which lacked any significant details but decreased the likelihood of a no-deal Brexit or a second referendum and extended some support to the British Pound.
Meanwhile, a downward revision to its global growth forecasts for 2019 and 2020 by the IMF on Monday, against the backdrop further slowdown in the Chinese economy to its weakest annual growth since 1990, prompted investors to move into traditional safe-haven currencies and kept a lid on any further gains.
The downside, however, remained cushioned, at least for the time being, as market participants now seemed to wait for today's important release of the UK labor market report, though any immediate reaction is more likely to remain short-lived amid plenty of Brexit uncertainties.
Technical levels to watch
The 1.2830 region might continue to act as immediate support, which if broken might turn the pair vulnerable to break through the 1.2800 handle and aim towards testing its next support near mid-1.2700s. On the upside, immediate resistance is pegged near the 1.2920-30 region, above which the pair is likely to make a fresh attempt towards conquering the key 1.3000 psychological mark.
Karen Jones, analyst at Commerzbank, suggests that the USD/JPY’s correction higher is losing steam, the intraday Elliott wave counts remain negative and the daily Elliott wave count continues to indicate failure at 110.30.
“We would then allow slippage back towards 107.75/50 and possibly the 104.10 spike low. The recent move lower was exhaustive and we suspect that this will hold for now.”
“Above 110.30 will allow for a retest of the 111.38 the 26th October low. Support at 104.63/10 guards the 100.70 Fibonacci support and the 99.00 2016 low. Initial support lies 107.77, 10th January low.”
“Resistance at 111.38, the 26th October low, guards112.23 the 6 th December low and the top of the range at 113.84.”
- The pair remains under pressure and is now putting the 1.1350 area to the test, or fresh multi-week lows.
- The continuation of the leg lower could open the door for a visit to the key 200-week SMA in the 1.1320 region. A break below this level could allow for a test of YTD lows in the 1.1300 neighbourhood ahead of December lows in the 1.1270/65 band.
- The bearish outlook on EUR/USD is expected to persist as long as the short-term resistance line, today at 1.1542, caps.
EUR/USD daily chart
Today Last Price: 1.1358
Today Daily change: -0.0011 pips
Today Daily change %: -0.10%
Today Daily Open: 1.1369
Daily SMA20: 1.1428
Daily SMA50: 1.1388
Daily SMA100: 1.146
Daily SMA200: 1.1599
Previous Daily High: 1.1392
Previous Daily Low: 1.1357
Previous Weekly High: 1.1491
Previous Weekly Low: 1.1353
Previous Monthly High: 1.1486
Previous Monthly Low: 1.1269
Daily Fibonacci 38.2%: 1.1378
Daily Fibonacci 61.8%: 1.137
Daily Pivot Point S1: 1.1353
Daily Pivot Point S2: 1.1338
Daily Pivot Point S3: 1.1318
Daily Pivot Point R1: 1.1388
Daily Pivot Point R2: 1.1407
Daily Pivot Point R3: 1.1423
Jens Peter Sørensen, senior analyst at Danske Bank, suggests that EUR/GBP remains mainly unaffected after UK PM, Theresa May, presented her Plan B for Brexit as it did not offer much news in terms of the future path for Brexit.
“All options are still on the table, including a second referendum, which the Labour party according to the media is said to be proposing to parliament. Voting on Plan B and other amendments will take place on 29 January. With an extension of Article 50 looking increasingly likely and parliament seeking to take over the Brexit process and thereby reducing the risk of a ‘no deal’ Brexit, the post-Brexit outcome distribution for EUR/GBP looks increasingly skewed towards the downside.”
“Appetite for GBP has generally improved and implied GBP FX volatility (Brexit risk premium) has declined significantly. We reckon that the range for EUR/GBP may have shifted lower and we now see the cross within the 0.86-0.89 range near term (previous range: 0.88-0.9060).”
• The pair finally broke down of its overnight consolidative trading range and has now dropped to test a short-term ascending trend-line support, held over the past one week or so.
• The fact that the pair has now found acceptance below 50-hour SMA, along with bearish technical indicators on the 1-hourly chart support prospects for an eventual bearish break.
• However, positive oscillators on the 4-hourly chart make it prudent to wait for a convincing break through the mentioned support before positioning for additional depreciating move.
USD/JPY 1-hourly chart
Today Last Price: 109.42
Today Daily change %: -0.24%
Today Daily Open: 109.68
Daily SMA20: 109.21
Daily SMA50: 111.45
Daily SMA100: 112.05
Daily SMA200: 111.2
Previous Daily High: 109.78
Previous Daily Low: 109.47
Previous Weekly High: 109.9
Previous Weekly Low: 107.99
Previous Monthly High: 113.83
Previous Monthly Low: 109.55
Daily Fibonacci 38.2%: 109.66
Daily Fibonacci 61.8%: 109.59
Daily Pivot Point S1: 109.51
Daily Pivot Point S2: 109.34
Daily Pivot Point S3: 109.21
Daily Pivot Point R1: 109.81
Daily Pivot Point R2: 109.94
Daily Pivot Point R3: 110.11
Lan Shen, economist at Standard Chartered, points out that the China’s January SMEI reading shows a marginal improvement in SMEs’ business performance entering 2019.
“The headline SMEI (Bloomberg: SCCNSMEI <Index>) – based on our monthly survey of more than 500 SMEs – edged up to 54.9 in January from 54.7 in December.”
“The ‘current performance’ sub-index advanced 0.4ppt from December and was 1.0ppt higher than in January 2018. The ‘credit’ sub-index picked up 1.2ppt from December and was 1.5ppt higher than January last year. This suggests a brighter start to this year compared to 2018, supported by improved credit support.”
“We expect the relaxation of criteria for banks’ eligibility for targeted RRR cuts, the targeted medium-term lending facility (TMLF) and the recent RRR cut to incentivise banks to increase credit allocation to SMEs and lower their funding costs.”
- The index extends the march north to the 96.50 region.
- Yields of the US 10-year note drops to the vicinity of 2.75%.
- US markets back to normal activity after Monday’s holiday.
The greenback, measured by the US Dollar Index (DXY), keeps the optimism well and sound so far this week, quickly leaving behind Monday’s small pullback and refocusing on 96.50, or 3-week highs.
US Dollar Index propped up by sentiment
The index is prolonging the rebound from YTD lows in the 95.00 neighbourhood seen earlier in the month, already gaining more than 1.5%.
In fact, the buck is deriving support from the lack of any significant progress in the US-China trade talks, stagnant Brexit negotiations and the probable re-assessment of fundamentals in the euro area, which continues to weigh on EUR.
In the data space, December New Home Sales are only due later in the NA session.
What to look for around USD
The US Federal government shutdown is already in its fourth consecutive week and investors have started to gauge its impact on GDP and employment figures during the first quarter. The US and China are expected to resume the trade talks at the end of the month in Washington. Until then, rumours and speculations are expected to run high and have their saying on the buck’s price action. On the longer run, the potential revision of the Fed’s tightening plans for this year appears to have lost some traction among traders, although this is expected to return to the fore as a key market driver in the medium term.
US Dollar Index relevant levels
At the moment, the pair is gaining 0.12% at 96.43 facing the next resistance at 96.47 (high Jan.22) seconded by 96.61 (55-day SMA) and finally 96.96 (2019 high Jan.2). On the flip side, a breakdown of 96.12 (21-day SMA) would open the door to 95.92 (10-day SMA) and then 95.76 (50% Fibo of the September-December up move).
According to Karen Jones, analyst at Commerzbank, for the GBP/USD pair, they have conflicting intraday Elliott wave count, but for now would allow for slippage to the 1.2775 55 day ma, as it is easing back from the 1.3000 level and looks set to consolidate near term.
“The market recently reversed from a 5 month support line. We regard the recent move to 1.2444, charted in January, as the end of the down move and we look for gains to the 200 day ma at 1.3088. Dips will find initial support at the 55 day ma at 1.2775 and 1.2669/62, the August low. Only below 1.2444/25 targets the 78.6% retracement at 1.2109.”
“Only a rise above the July, September and October highs at 1.3258/1.3363 would put the June high at 1.3473 on the cards.”
• The global flight to safety lifts the USD to near two-week tops.
• Weaker oil prices undermine Loonie and remained supportive.
• Today’s second-tier economic data might provide some impetus.
The USD/CAD pair built on the overnight positive momentum and climbed further beyond the 1.3300 handle to hit over two-week tops in the last hour.
A slowdown in China economy to 28-year lows, followed by a downward revision to its global growth forecasts by the IMF fanned fresh worries over global growth and boosted the US Dollar's traditional safe-haven appeal.
Meanwhile, weakening global economic data were cited as a headwind for crude oil prices, which further undermined the commodity-linked currency - Loonie and remained supportive of the up-move to the highest level since Jan. 7.
The latest leg of a sudden pick up over the past hour or so could also be attributed to some technical buying on a sustained move beyond the 1.3315-20 region, lifting the pair back towards 50-day SMA support-turned-resistance.
It would now be interesting to see if bulls are able to maintain their dominant position amid relatively thin economic docket, featuring the release of Canadian manufacturing sales and existing home sales data from the US.
Technical levels to watch
On a sustained move beyond the mentioned barrier, around the 1.3345 region, the pair is likely to aim towards reclaiming the 1.3400 round figure mark. On the flip side, any meaningful retracement now seems to find immediate support near the 1.3300-1.3290 region, which is followed by support near the 1.3255-50 horizontal zone.