eFXplus DATA

Danske Research discusses its expectations for next week's ECB policy meeting.

"With no new policy signals expected next week, we stick to our three-stage rocket to orbit view for the EUR/USD. (see here) We have long been hinting that the next big move in EUR/USD will be higher on valuation grounds but stress that a rebound is a three-stage-rocket – and Fed ‘on hold’ is only the first stage to orbit.

With the break of October 2018 highs justified based on higher long real yield spread, EUR/USD ranges have moved higher with 1.15 now more likely to be the midpoint going forward. As Q1 progresses, we expect the second stage to be reached and 1.20 to be in sight,' Dankse argues. 

"Furthermore, we note that even though the EUR/USD has range-traded recently, the effective EUR has shown signs of weakening on a broader scale. In the past few months, the year-on-year appreciation pace has fallen markedly and is now up by only 0.5% y/y (from 10% y/y in October 2018). In our view, a weaker euro is good for the ECB and its narrative," Danske adds. 

• Bank of Italy lowers 2019 GDP f/c & stated Italy probably in a recession
• German & Italy GDP concerns suggests EU's core economies are faltering
• Risk rally sharply lifts UST yields & US$, EUR/USD hits a new short-term low
• Pair falls below the 55-DMA and nears the daily cloud base
• China sales & GDP, DE ZEW, Euro zone PMIs & ECB are key risks next week
• Dovish results could see EUR/USD driven towards 2018's low nL1N1ZI0RZ

Consolidation of AUD/USD gains suggests new highs are due but key risks from China loom which could alter the bullish view.
China's December retail sales and industrial production reports as well as Q4 GDP are due Jan 21.
AUD/USD longs will likely exit if results come in below forecast and bolster perceptions that global growth is waning.
Bearish pressure on AUD/USD could see 0.7145 and 0.7110/15 supports break and key support in the 0.7050/80 zone tested.
A break below 0.7050 would downgrade bull sentiment and AUD/USD could trade below 0.70000.
In-line or above forecast results will have a bullish effect as they could indicate the economic soft patch is over.
Risk assets, the emerging market complex and high beta currencies such as aussie would, therefore, gain.
A bullish outcome could drive AUD/USD above 0.7230/50 resistance and put the pair on track for a test of the 200-DMA.
U.S.-Sino trade talks at the end of January are another key risk.
Sharp rallies by AUD/USD to recent headlines suggesting trade progress indicate what lies ahead should solid progress be made.
A trade deal could drive AUD/USD above December's high.

Societe Generale Research discusses GBP outlook and maintains a tactical bullish bias, expressing that via staying short EUR/GBP* in cash targeting a move towards 0.8650.

"We like shorts in EUR/GBP and longs in GBP/USD via options. A no-deal Brexit is still a significant risk, but a deal that leaves the UK in some form of customs union, or a second referendum, would be very sterling-supportive. This morning’s papers tell us that the Prime Minister has so far resisted pressure to put her red lines on the bonfire and has antagonised parliamentary colleagues of almost all persuasion. That will have to change to avoid disaster but it (almost certainly)," SocGen argues.

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*Recorded in eFXplus Orders

CIBC Research discusses the reaction to today's Canadian CPI print for the month of December.

"Headline inflation bucked expectations for a soft print, but only because of a recent methodology change to the way airline fares are calculated. Inflation accelerated to a pace of 2.0% on the back of a -0.1% monthly change in CPI. The consensus had been looking for a relatively unexciting 1.7% headline rate. But, according to the new methodology, airline fares were up 22% on the month, which contributed to a seasonally-adjusted 0.4% gain in CPI ex-food and energy, an upside surprise versus the consensus.

That effect shouldn't last though, as the methodology change is only exacerbating seasonal trends, and will therefore likely be reversed in January. Looking through all the volatility, the BoC's three core measures remained steady from the prior month, averaging just a touch below 2%. All told, the loonie is rallying off the higher than expected headline, but could come back after investors digest the details,' CIBC argues. 

EUR/USD: Neutral (since 21 Aug 18, 1.1485): EUR is mild downward pressure, could test 1.1330 support.

EUR eked out another ‘fresh’ low of 1.1367 yesterday (17 Jan) before recovering to end the day little changed at 1.1395 (-0.01%). The price action reinforces our view that EUR is “under mild downward pressure” and we continue to see chance for a test of the 1.1330 support. However, the next support at 1.1300 is a major level and is unlikely to yield so easily. On the upside, only a move above 1.1460 (level was at 1.1480 yesterday) would indicate that the current mild downward pressure has eased.

GBP/USD: Neutral (since 21 Aug 18, spot at 1.2795): NY close above 1.3000 would suggest start of a sustained rebound.

On Wednesday (16 Jan, spot at 1.2870), we held the view “GBP could continue to gyrate within a broad 1.2600/1.3000 range for the next couple of weeks”. However, the solid surge in GBP that quickly hit 1.3001 yesterday (17 Jan) came as a surprise. Upward momentum has improved considerably and if GBP were to register a daily closing above 1.3000 in NY, it would suggest the start of a sustained rebound. All in, we expect GBP to stay underpinned from here unless it moves below the ‘key support at 1.2860.

AUD/USD: Neutral (since 13 Sep 18, spot at 0.7170): Recovery in AUD has room to extend to 0.7270. No change in view.

Despite the relatively deep pull-back in AUD yesterday (NY close of 0.7167, -0.50%), it is too early to expect a short-term top. We continue to hold the view that the recovery from the ‘flash crash’ low has room to extend to 0.7270. That said, yesterday’s price action has dented the upward momentum and the prospect for 0.7270 to be tested has diminished. On the downside, a move below 0.7120 would indicate last week’s 0.7235 high is a short-term top.

NZD/USD: Neutral (since 07 Dec 18, 0.6880): NZD under mild downward pressure, could grind lower to 0.6710.

There is not much to add to yesterday’s (17 Jan) update. As highlighted, despite the relatively large decline on Wednesday (16 Jan), there is only a slight improvement in downward pressure. For now, we continue to hold on the view that barring a move above 0.6850, NZD is expected to grind lower to 0.6710 in the coming days. The prospect for a sustained decline below 0.6710 remains low.

USD/JPY: Neutral (since 09 Oct 18, 113.10): USD could test 109.40 but a sustained up-move appears unlikely. No change in view.

While USD moved above the top of our expected 107.00/109.00 sideway-trading range and closed at a post-‘flash crash’ high of 109.08 (+0.38%), we have doubts about the sustainability of the current short-term USD strength. That said, a test of 109.40 is not ruled out but only an unlikely NY closing above this level would suggest USD is ready to challenge 110.00. Meanwhile, USD could stay underpinned for the next few days and only a move below 108.40 would suggest the current mild upward pressure has eased.

• AUD/USD elicited support at 0.7176 after breaking below 0.7186 (Asia base)
• 0.7176 is 61.8 pct of Thursday's rise from 0.7147 (one-week low) to 0.7222
• Thursday's high was posted after a WSJ report on Mnuchin/China tariffs
• See: nL1N1ZH1F8 nL1N1ZH1FI. SSEC closed up 1.4 pct today nZZN2RHO00
• China trims 2017 GDP growth rate ahead of Q4 GDP data Monday nL3N1ZI17D
• Thursday's AUD/USD high was four pips shy of Tuesday's intra-week peak

• EUR/USD marginally bearish bias although down move is losing momentum
• Further highs below daily cloud top at 1.1420 will encourage bears
• Close under 55-DMA @ 1.1385 should spark fresh selling
• Marginal break of 76.4% retr 2019 rally @ 1.1371 suggest deeper drop
• Full retrace is 1.1310. 76.4% bigger rally since Nov 2018 is 1.1301
• Close back over 21-DMA 1.1427 needed to refresh early year bullish view

• Modest rebound in USD/ZAR feeding through to firmer GBP cross
• Dovish tilt to SARB rhetoric after Thurs no change call in the mix
• Brexit noise favouring GBP but fragile as uncertainty still stalks
• However, GBP/ZAR near good technical resistance-fade-stop levels
• 17.9265 sell-off high from Jan 14, 17.9348 cloud base and 18.0063 200DMA
• Look for a return to Jan 15 or Dec 4 lows, 17.4896 and 17.3184 respectively

• Nudge above 1.30 Thurs took price clear above 1.2943 upper 30DMA Bolli
• Our short stop raised to 1.2875, 125-pts locked in
• Drop in Friday momentum as price eases back to the 1.2960s
• Risk of a softer session as week-end adjusting bites: Bolli line risk
• 100DMA seen key for bulls, 1.2893, 200DMA remains a target at 1.3097
• Weeklies flirting with a close above 30WMA at 1.2935

• GBP/USD has reached an opportune level to pick a top for today's data
• UK Dec retail sales at 9.30GMT are f/c -0.8%mm, smart estimate -0.95%
• According to BRC Christmas sales were the worst in a decade nL9N1M100K
• GBP/USD 1.3001 high yesterday with bullish closes over cloud and 100-DMA
• Given market net short, if data disappoints 1.2880-1.2900 may well hold
• If data surprises to beat estimates expect test of 200-DMA @ 1.3097

• AUD/USD rallies with stocks in early trade, but loses steam and retreats
• Range for Asia 0.7186/0.7205, market optimistic on US-China trade talks
• Techs mostly supportive, but AUD/USD needs to make progress soon
• Resistance clear at recent daily highs and 76.4 Fibo at 0.7225/35
• Initial support at 10 DMA at 0.7181, close below would suggest consolidation
• Stronger support 0.7135/45, close below negates bullish outlook

Bank of America Merrill Lynch Research discusses USD/JPY outlook and adopts a structural bearish bias, revising its targets 101 by year-end. 

"We find live signs that Japan's domestic USD demand has started to fall. We remain bearish and cut USD/JPY forecasts. 1. USD/JPY has started to fall in Tokyo market hours. 2. Japan's outward security investment is slowing down. 3. Oil price decline in 4Q18 to depress energy imports in 1Q19. 4. Machine tool order slump signals M&A slowdown," BofAML notes. 

"We revise USD/JPY forecasts to the downside with the year-end forecast revised down from 105 to 101. We did not pencil in 100 in our forecasts as 101 would provide significant support as in 2016. However, a breach of 100 could precipitate a further move lowertowards 95 given the higher USD/JPY conviction that prevailed in 2018," BofAML adds. 

• -0.1% in a 1.2968/1.2994 range - active Asia, especially for a Friday
• EUR/GBP +0.15%, after trading a 0.8775/88 range - occasional decent flow
• Momentum studies, 5, 10 & 21 DMAs climb - daily charts are bullish
• Close above 1.2957, 61.8% Sep/Jan fall targets 1.3097 falling 200 DMA
• NY 1.3001 high, then 1.3086, 76.4% of the Sep/Jan fall first resistance
• 1.2883 NY low then London 1.2833 base initial support

• -0.1%, after closing +0.8%, as chances of a no deal Brexit receded
• Leaders do not want a new referendum, but it gains traction nL3N1ZH5I3
• YouGov poll yesterday showed 'remain' has a 12pt lead nL8N1ZH2OM
• Momentum studies, 5, 10 & 21 DMAs climb - daily charts are bullish
• Close above 1.2957, 61.8% Sep/Jan fall targets 1.3097 falling 200 DMA
• NY 1.2883/1.3001 range is initial support/resistance

• AUD/USD edging higher as S&P e-minis up 0.2%, Nikkei +0.9%
• Stocks rebound despite US Treasury denial of WSJ China tariff story
• High so far 0.7205, resistance clear at 0.7225/35 with highs and 76.4 Fibo
• Momentum studies and 5, 10, 21 DMAs heading higher, supports uptrend
• Initial support at 10 DMA at 0.7182, strong support 0.7135/45
• Any progress on US-China trade should see rally towards 200 DMA at 0.7316
  

• Tight early after closing little changed, but a fifth lower daily low
• 1.1375-80 1BLN, 1.1390-1.1405 3BLN and 1.1415-25 2BLN strikes contain
• Italy approved flagship welfare reforms at a cost of EUR 11bln nL8N1ZH66W
• Interesting to see the debt market response at current low Italian yields
• Momentum studies slip, negative 5 DMA cross of 10 & 21 DMAs - bearish setup
• 1.1371, 76.4% of the January bounce and 1.1406 NY high support/resistance

Citi discusses USD outlook and notes that investor flow remain overall USD negative.

"The Citi CitiFX Flows team notes net USD outflows by real money (RM) investors over the past 3-weeks which follow a long period of net buying.

The shift in USD RM flows coincides with the mid-December downturn in USD and more dovish Fed speak," Citi notes. 

Citi also notes the US govt shutdown continues to be one of the factors weighing on USD sentiment (albeit in the short term).  

• Slide from January's peak extends but fails to break support near 0.7145
• Risk gains in NY; stocks, copper & AUD/JPY gain, AUD/USD lifts from support
• Pair gains despite recent soft AU data; traders focused on central banks
• Views grow that easier central bank policy should buoy growth and high betas
• Market particularly focused on recent Fed rhetoric and PBOC actions
• AUD/USD consolidation persists, higher levels possibly due nL1N1ZH10F

If AUD/USD bulls have one thing in their favor, even in the face of new worries about housing and consumers, it's that global central banks are turning cautious. Australian November housing finance data affirmed housing concerns while the slide in January's Melbourne Institute and Westpac index show consumers growing leery.
And yet, AUD/USD has remained resilient.
The pair's recent consolidation phase remains intact nL1N1ZG1AX after support near 0.7145 held.
Central bank influence is likely the main driver and could help AUD/USD to new heights. The Fed's rhetoric of patience suggests rate hikes in 2019 are unlikely while the PBOC seems dedicated to easy policy in order to spur growth.
Easier monetary policy should bolster global growth prospects, to the benefit of the aussie.
Positioning likely remains a factor to keep AUD/USD buoyed as well.
CFTC positioning updates remain unavailable but net-long U.S. dollar exposure may still be elevated.
With Fed rate hikes possibly a thing of the past, reduction of those long positions should persist and help underpin AUD/USD.
AUD/USD consolidation should resolve with a break higher.
Bears need to clear 0.7050/80 support to gain control.