Thursday 29th January: European Open Briefing

Global Markets:

• Asian stock markets: Nikkei down 0.30 %, Shanghai Composite lost 1.20 %, Hang Seng 1.20 %, ASX gained 0.40 %
• Commodities: Gold at $1283.40 (-0.30 %), Silver at $17.90 (-1.00 %), WTI Oil at $44.45 (unch), Brent Oil at $48.64 (+0.25 %)
• Rates: US 10 year yield at 1.731, UK 10 year yield at 1.454, German 10 year yield at 0.354

News & Data:

• Australia CB Leading Index 0.1 % m/m, Previous: -0.2 %
• Japan Retail Sales 0.2 % y/y, Expected: 0.9 %, Previous: 0.4 %
• Reserve Bank of New Zealand leaves main rate unchanged at 3.50 %
• RBNZ expects to keep cash rate on hold for some time
• RBNZ: NZD remains unjustifiably and unsustainably high
• RBNZ: Inflation will be below 1% in 2015; return to 2% inflation will be more gradual
• RBNZ expects further significant depreciation of NZD

FOMC Statement:

• Federal Reverse repeats can be “patient” in beginning to normalize stance of monetary policy
• Statement no longer contains “considerable time” phrase
• Timing of rate hikes continues to depend on incoming information, progress toward inflation and employment objectives
• Fed: Inflation has declined and may decline further, but should increase over the medium-term as labor market improves and temporary effects of low enegry prices fade

Markets Update:

The Reserve Bank of New Zealand left the main rate unchanged at 3.50 %, but the dovish tone in the statement led to a sharp decline in the New Zealand Dollar. The RBNZ has dropped the „need for higher rates“ phrase in the latest statement and said that the OCR rate may stay at the current level for some time. The bank expects inflation too slow down in the near-term, driven by drop in energy/commodities prices, but thinks inflation will rebound in the medium-term and return towards the 2 % target.

There were no surprises from the FOMC. The Fed has left rates unchanged, as expected, and the statement didn’t contain any surprises. However, the slightly more upbeat language from the FED officials boosted the USD in the late NY session. Their assessment of the current economic activity was upgraded from „moderate“ to „solid“ and their outlook on inflation remains largely unchanged, despite the recent decline caused by falling energy prices.

EUR/USD fell back below 1.13 after FOMC and extended the decline to 1.1265 in Asia. Immediate support noted in the 1.1200-10 area, but given current sentiment, we could see a test of 1.11 soon. Dealers report that selling interest from leveraged funds remains high and the recent spike to 1.14 was used by many to add to short positions. GBP/USD is back at 1.5140 after another false breakout around 1.5220. This is the third time the pair failed to break higher at this level in the past 7 days and it is likely that downside momentum will intensify should it fail to breach that resistance area soon.

USD/JPY still very quiet. Even the FOMC and the decent USD gains overnight weren’t able to get the pair out of the current range. Volatility in the USD/JPY will sure return soon, but it is difficult to predict when exactly it will happen. To the downside, there are reports of stops in large size below 117.20 and again through 116.90. Key support at 117.20 and then not much seen until 115.85. To the topside, 118.80 is currently the pivotal s/t resistance level.

The commodity currencies are under pressure again, with NZD/USD declining to 0.7312 after a more dovish than expected RBNZ and AUD/USD heading for a test of the Monday low at 0.7855, just 24 hours after breaking above 0.80 on better than expected inflation data. Meanwhile, the Canadian Dollar weakened even further after Canada revised its employment data to the worse and Oil declined to fresh lows.

Looking ahead, we have German employment data as the main event in the upcoming EU session and then German inflation & US Initial Jobless Claims in the US trading session.

Upcoming Events:

• 08:55 GMT – German Unemployment Change (-10k)
• 08:55 GMT – German Unemployment Rate (6.5 %)
• 09:00 GMT – Euro Zone M3 Money Supply (3.5 %)
• 10:00 GMT – Euro Zone Consumer Confidence (-9.0)
• 13:00 GMT – German CPI (-0.8 m/m, -0.1 % y/y)
• 13:00 GMT – German HICP (-1.0 % m/m, -0.20 % y/y)
• 13:30 GMT – US Initial Jobless Claims (300k)
• 15:00 GMT – US Pending Home Sales (0.5 %)

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