Friday ended with a risk-off tone in markets, with the US stock indices falling by around 0.75%, while a continuation of the short covering/safe haven bid in the US$ saw the currency end on a firm note despite Treasury yields sliding lower from last week’s highs.  Traders had spent much of the week in an optimistic mood that the incoming Biden administration would announce an oversize economic stimulus package to jump-start the so-called “reflation trade”, but the $1.9T package was a little lower than the expectations and in a classic ‘ buy the rumour/sell the fact’ scenario, the upbeat, risk-on mood deflated rather quickly. Adding to this is the fact that the plan is far from a done-deal, and Joe Biden’s proposal could be watered down under congressional opposition, with the added possibility that some taxes could rise.

The US$ index (DXY) managed to gain another 0.6% in continuing its recent recovery from new 3 year lows, with the European majors and the commodity currencies all looking a little heavy heading into the start of the coming week.

Commodities did not fare well either, with Gold falling by another $21oz and WTI down by $1.50 per barrel, but still holding on above $50, which should provide decent support should we see it.

The US data on Friday was not helpful either. The retail sales for December dropped by -0.7% mm, much worse than the expectation of 0.0% mm.  The US PPI rose by 0.3% mm, 1.8% yy, matching expectations although the Core PPI came in at 0.1% mm, 1.2% yy, both below expectations of 0.2% mm, 1.3% yy.

Looking ahead, the coming week will be busy on most days although with Monday being the Martin Luther King holiday in the US it may be a fairly quiet start and, with the Inauguration of Joe Biden as US President due on Wednesday, traders may well sit on their hands until then to see how that turns out. Hopefully, peacefully! The week is generally going to be relatively thin as far as US data is concerned.

In the meantime, Monday will see some important China data, headed by the Q4 GDP (exp +3.1%qq), and also including the monthly Industrial Production (exp +6.8%mm), Retail Sales (exp +5.5%mm), Fixed Asset Investment (exp +3.2%mm) and the NBC Press Conference. There is otherwise little on the calendar for Monday, while Tuesday will look to European data for guidance, with the release of the German CPI/HICP (CPI, exp -0.8%mm, -0.3%yy; HICP, exp -1.0%yy), the ECB Bank Lending Survey and the German/EU ZEW Economic Sentiment Survey. Wednesday will feature the China Interest Rate Setting and a busy session for Europe, which will include the UK CPI, PPI, RPI, the German PPI and the EU CPI. This will come ahead of Biden’s inauguration and the handover from the Trump administration, so we may see some action late in the session (early Thursday in Asia). Thursday will be busy for the Australian markets, with the release of the January CPI and the December Unemployment data, while central bank interest rate decisions are due from the BOJ and the ECB. Late in the day, the US will look to the US housing data (Building Permits/Housing Starts) and the Philadelphia Fed Mfg Survey. Finally, Friday will focus on the global flash PMIs, to be released through the session, with other interest lying in the release of the NZ Q4 CPI and the Australian Preliminary Retail Sales (Dec). Have a good week.

Economic data highlights will include:

Mon: US MLK Holiday, China Q4 GDP, Industrial Production, Retail Sales, Fixed Asset Investment, NBC Press Conference, Japan Industrial Production, Capacity Utilisation, EU Eurogroup Meeting, BuBa Monthly Report,

Tue: NZ Electronic Card Retail Sales, Q4 Business Confidence, Australian New Home Sales, WBC Leading Index, German CPI/HICP, EU Current Account, Construction Orders, ECB Bank Lending Survey, German/EU ZEW Economic Sentiment Survey, Global Dairy Trade Index, BOE’s Haldane Speech

Wed: Australian WBC Consumer Confidence, China PBOC Interest Rate Decision, UK CPI, PPI, RPI, German PPI, EU CPI, US EIA Weekly Crude Stocks Change, API Weekly Crude Oil Stock Inventory, NAHB Housing Market Index, Inauguration of Joe Biden as US President

Thur: NZ Visitor Arrivals, Japan Merchandise Trade Balance, Australian CPI, Unemployment, BOJ Meeting/Interest Rate Decision/Outlook/Press Conference, EU Leaders Summit, UK Credit Conditions, ECB Interest Rate Decision/Outlook/Press Conference, US Building Permits, Housing Starts, Weekly Jobless Claims, Philadelphia Fed Mfg Survey,

Fri: NZ CPI, Global Flash Mfg/Services/Composite PMIs (Australia, China, Japan, EU, UK, US), Japan National CPI, Australian Retail Sales, UK Retail Sales, US Existing Home Sales

Market moves, in brief:

FX: DXY 90.77 (+0.59%)

Bonds: US10Y; 1.087% (-3.89%), German 10Y; -0.541% (+0.02%), UK 10Y; 0.287% (+0.10%), Australian 10Y; 1.054% (-1.30%), NZ 10Y; 1.033% (-3.59 %), China 10Y; 3.145% (0.00%)

Stock Indices: DJI; -0.57%, S+P; -0.72%, NASDAQ; -1.08%, EUStoxx50; xxxx%, FTSE100; xxxx%, Shanghai Composite; +0.01%, ASX200SPI: -0.26%

Metals: Gold $1828 oz (-0.96%), Silver $24.77 oz (-2.86%), Copper $3.602 lb (-1.71%), Iron Ore $170.15 per tonne (NYMEX) (+0.02%),

Oil: WTI $52.11 pb (-2.95%)

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Trend Table: January 18, 2021                                                        

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In the trend table below, when looking at the charts for a particular FX pair, index or commodity, we are we searching for 2 or 3 consecutive boxes of the same colour which might indicate a trend – and a possible trading opportunity. Consecutive (1 & 4 hour, 4 hour/daily, daily/weekly) green boxes indicate a possible short/medium/long term uptrend; red, a possible downtrend, while blue signifies a neutral bias (range trade possibility).  The boxes on the trend table merely replicate the look of the charts for the specific time-frame in MT4/5. Assets with a mixture of colours are pretty much ignored as choppy conditions seem likely to prevail.

For instance, if we see consecutive green boxes in the  1 hour and 4 hour time-frames for the FX pair “EURUSD”, that would signify the chance of a move higher in that pair over the next 24 hours. If the dailies were also green that would add to the bullish conviction from a slightly longer term perspective, and if the weeklies are also green then it would give added credence to the longer term bullish view, albeit that it might take longer for the trend to play out, so patience will almost certainly be required.   The opposite would be true of red boxes, which could signify downward momentum. The strength of any possible trend depends on the time-frame, with the longer term (daily, weekly charts) obviously having a greater overall weighting than the short-term charts.

In the near term though, the 1 and 4 hour charts are what are likely to combine to indicate the possibility of a trading idea for the next few, possibly up to 24, hours.

Note that a longer term bullish view (green daily/weekly boxes) does not discount the possibility of near term dips (i.e. Red 1 & 4 hour boxes), which may indicate near term weakness and suggesting that we should be looking to buy dips for a longer term rally – and vice versa if the near term boxes are green and the longer term; red.

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Trend Table:

EURUSDUSDJPYGBPUSDUSDCHFAUDUSDNZDUSD
1 HourDown – OversoldTurning NeutralDownTurning HigherTurning LowerDown – Oversold
4 HourTurning LowerTurning NeutralTurning LowerTurning NeutralNeutral – Turning Lower?Turning Lower
1 DayTurning LowerNeutral – Turning Higher?Turning NeutralTurning HigherNeutral – Turning Lower?Neutral – Turning Lower?
1 WeekPossible Topping FormationTurning NeutralTurning HigherPossible Basing FormationUp – OverboughtPossible Topping Formation
DXYS+PASX200GOLDSILVEROIL_WTI
1 HourTurning Higher?Turning Lower?Turning NeutralTurning Lower?Turning LowerDown
4 HourTurning HigherNeutral – Turning Lower?Turning NeutralNeutral – Turning Lower?Neutral – Turning Lower?Turning Lower
1 DayTurning HigherTurning NeutralTurning NeutralNeutral – Turning Lower?Turning Lower?Possible Topping Formation
1 WeekPossible Basing FormationUp – OverboughtPossible Topping FormationDownTurning LowerTurning Higher
EURJPYEURGBPGBPAUDAUDJPYEURAUDAUDNZD
1 HourDown – OversoldNeutralTurning NeutralPossible Basing FormationTurning NeutralTurning Higher
4 HourTurning Lower?Neutral – Turning Higher?Turning NeutralNeutral – Turning Lower?Turning Higher?Neutral – Turning Higher?
1 DayTurning Lower?Neutral – Turning Lower?Neutral – Turning Higher?Neutral – Turning Higher?Turning Lower?Turning Higher
1 WeekTurning NeutralTurning NeutralTurning NeutralTurning HigherTurning LowerTurning Neutral

Outlook:                        

The Trend Table is showing a distinct “risk-off” tone on Monday although it is a US holiday so markets are going to be illiquid and will probably lack directional bias.

The US$ looks set to remain underpinned, particularly against the Euro, Aud$ and NZ$ and I would be looking to sell into strength today towards 1.2125, 0.7750 and 0.7150 respectively, with a 50 point SL placed on each pair.

On the crosses, Jpy strength seems to be growing, while AudNzd may be set to move back towards 1.100

I think that the stockmarkets look overcooked on the topside and we may see further reversals lower in the days ahead, albeit today may hang near to the Friday closing levels, awaiting the return of the US, tomorrow.

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