FOREX: Cross/JPY Boosted, USDMXN Trades to Four-Month Low Below 20.00
- Friday’s session was characterised by a strong rally for the Euro, as headlines suggested Germany have found a solution to the debt brake passage. EURUSD rose from around 1.0850 to 1.0912 following the news, falling short of most recent cycle highs which reside at 1.0947.
- With the associated move higher for European yields, it is the low yielding JPY and CHF which have really felt the pinch, with EURJPY and EURCHF rising 0.7% and 0.55% respectively.
- Overall, there was considerably more optimism across global markets, as major equity indices rose around 1.5% on both sides of the Atlantic. This allowed the likes of AUD and NZD to outperform G10 peers. UK economic data out this morning surprised to the downside, with GDP surprisingly contracting in January while industrial and manufacturing production data came in well below forecast. GBP is notably softer as a result.
- Rengo pay tallies in Japan have again proved market moving - while unions are set to demand a faster pace of pay rises this year (5.46% from 5.28%), the final demand may turn out lower than many surveys had estimated - undermining the JPY. The firmer risk sentiment has seen the likes of AUDJPY and NZDJPY surge over 1%, entirely reversing yesterday’s misfortunes.
- Following the breach of key support on Thursday around 20.13, USDMXN has continued to grind lower during today’s session, and the clean break highlights the growing potential for a stronger reversal lower. The pair is 1% lower on the session as we approach the close, trading at the lowest level for four months, around 19.88. Below here, attention turns to the lows seen in the aftermath of the election results at 19.7618, while resistance moves down to 20.3851, the 50-day EMA.
- Activity data in China is scheduled on Monday’s, before US retail sales headlines the economic data calendar. Next week, will see a plethora of central bank decisions, including the Fed and BOJ.
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FED: Chicago's Goolsbee Still Sees Rates "Fair Bit" Lower Despite "Sobering" CPI
Chicago Fed President Goolsbee (dove, 2025 FOMC voter) tells the NY Times that the January CPI report was "sobering". While he told the NYT that seasonal effects may have been at play as usual in January, and echoed Fed Chair Powell's post-CPI comments by saying that he would not read too much into a single inflation report, he also said “there’s no question, if we got multiple months like this, then the job is clearly not done."
- Nonetheless, Goolsbee repeated his pre-CPI outlook on Fed rates - that they would end up a "fair bit below where we are today,” though that's conditional on "confidence that we are on path to 2 percent inflation.”
- It would appear that the January inflation data has tested but not completely shaken FOMC doves' confidence in the disinflationary story - Powell didn't express particular concern when asked in Congress earlier (“we’re close, but not there on inflation.”)
- And the only other post-CPI commenter so far - Atlanta's Bostic, more of a hawk than a dove - doesn't seem to have changed his overall rate cut view (in line with the FOMC median, 50bp this year and 50bp next), though he mentioned "uncertainty" as a reason to be less confident, with the latest inflation data suggesting that careful monitoring of conditions is still required.
BONDS: Europe Pi: OAT Short, Gilt Flat, BTP Long (2/2)
Outside of Germany in Europe Pi, structural positioning is slightly more mixed:
- OAT: OAT is in short positioning (was "very short" in our last update). Recent trade suggests long reduction.
- GILT: Gilt structural positioning remains flat. The most recent week saw trade indicative of long reduction.
- BTP: BTP has returned to its usual structural long positioning, after briefly touching flat territory in January. Shorts were set in the most recent week of trade.
GBPUSD TECHS: Resistance Remains Exposed
- RES 4: 1.2667 High Dec 19
- RES 3: 1.2610 38.2% retracement of the Sep 26 ‘24 - Jan 13 bear leg
- RES 2: 1.2576 High Jan 7
- RES 1: 1.2550 High Feb 5
- PRICE: 1.2430 @ 16:04 GMT Feb 12
- SUP 1: 1.2333/2249 Low Feb 11 / 3
- SUP 2: 1.2161 Low Jan 17 / 20
- SUP 3: 1.2100 Low Jan 10 and the bear trigger
- SUP 4: 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing
GBPUSD found support Tuesday but for now, the pair continues to trade below its Feb 5 high. Price recently traded above the 20- and 50-day EMAs, and pierced 1.2523, the Jan 27 high. A resumption of gains would signal scope for a move towards 1.2610, a Fibonacci retracement. Key short-term support to watch has been defined at 1.2249, the Feb 3 low. Clearance of this level would instead highlight a reversal and strengthen a bearish threat.
