European Central Bank (ECB) kept key interest rates and future guidance unchanged but downgraded its assessment by stating that the balance of risks has moved to the downside. The Asian trading session had a positive run even though no deal has been made in relation to the US-China trade situation.
Secretary of Commerce Wilbur Ross said the world’s two biggest economies remain “miles and miles” apart on trade. Japan’s Nikkei advanced 0.97% to 20,773 Hong Kong’s Hang Seng added 1.37% to 27,498, while the Shanghai Composite edged up 0.39% to 2,601. Aussie stocks ended higher; the ASX 200 index jumped by 0.7% to close above 5900 for the first time since 12 November 2018. With just three trading days remaining in January, we are on track to have the best month since July 2016. The benchmark 10-year U.S. Treasury note yield was slightly higher at 2.724% after dropping to a weekly low. Gold is trading higher to $1284 per ounce.
On the Lookout: ECB left policy unchanged and kept its guidance intact for rates to remain at their present levels at least through the summer of 2019, but downgraded its assessment by stating that the balance of risks has moved to the downside. Calendar in the euro area highlights the publication of the German IFO indicator. Durable Goods Orders and New Home Sales are also due later today in the US.
Next week will be very busy; four of the world’s biggest companies will release earnings from Tuesday to Thursday next week (Apple, Microsoft, Facebook, and Amazon). The Brexit vote, US-China trade talks, a Fed meeting, and US employment numbers will also receive attention.
Trading Perspective: EURUSD was under selling pressure yesterday hitting five weeks and yearly low below 1.13 (1.1289) The European Central Bank kept interest rates on hold as expected. Mario Draghi warned about risks to the downside and added that ‘significant stimulus’ was required to sustain inflation. Bad news continues for the Eurozone; There is a report that the German economic ministers to revise 2019 economic growth forecast downwards to 1.0% from 1.8% in the previous forecast. In 2020 we expect GDP growth of 1.6%. I will not be surprised if the ECB changes its forward guidance on rates in the coming months and delays its rate hikes. It’s certain that after worst than expected macro news in Europe, the common currency can’t get any bids, the only boost EUR can get is weakness from US economy, which I expect to happen only when the Fed is done with the tightening cycle. I am looking for two more Fed funds rate hikes this year; this suggests more downside to EURUSD in the coming months.
Technically, the pair broke to the downside the five days neutral stance between 1.1370 and 1.14. The bears took control and pushed the price below 1.13 and now targeting 1.1269 the previous month low from December 14th, 2018, on more selling, the lows from November will be eyed at 1.1206. On the upside, only a break above the 50-hour moving average at 1.1350 can enhance bidding. Next resistance with heavy supply can be met at yesterday’s high at 1.1393.
In EUR futures markets, open interest dropped by only 31 contracts on Thursday vs. Wednesday’s final 530,541 contracts. Volume, instead, rose sharply by more than 152.1K contracts, the largest daily increase so far this year.
GBPUSD is the outperformer for one more day, on the back of rising hopes on a ‘soft Brexit’ outcome. The pair hit daily high in late Asian session at 1.3138, justifying that bulls control the game as short sellers running to cover. The big bet for the pair is to hold above the 200-day moving average which conquers today. Resistance can only be met by the weekly moving average at 1.1359 a level we haven’t seen since April 2018. On the downside, 1.3011, the lows from yesterday can provide support while more buying interest can emerge at 1.29 the 100-day moving average.
Open interest in GBP futures decreased for the sixth session in a row on Thursday, this time by nearly 3K contracts vs. Wednesday’s final 208,517 contracts, according to advanced data from the CME Group. In the same line, volume shrunk by more than 18.2K contracts, the second consecutive drop.