Risk correction takes a breather ahead of US Inflation

Good morning,

Following well bid equity markets this week, the markets retreated in the Asian session with USD/JPY trading below 113 and the Nikkei 225 and Topix dropping more than a percent. Commodity markets were mixed with gold still enjoying its safe haven status back above 1220 while US Crude oil found new offers just below the 32-lvl on back of increasing inventories and daily trend resistance projected from the November 2015 highs.

Data recap:

  • French HICP (Jan) out MoM/YoY at -1.0%/-1.1% vs. 1.0%/1.0% expected. Prior at 0.2%/0.2%
  • EU Current Account (Dec) out at 25.5B vs. 22.3B expected. Prior at 26.9B (revised up from 26.4B).
  • ECB Published Account of recent Monetary Policy Meeting
  • US weekly Initial/Continuing Claims at 262k/2273k vs. 275k/2250k expected.
  • US Philly Fed (Feb) at -2.8 vs. 3.0 expected. Prior at -3.5
  • CA Wholesale Prices (Dec) at 2.0% vs. 0.2% expected. Prior at 1.9% (revised up from 1.8%)
  • US weekly Crude Oil Inventories at 2.147M vs. 3.920M expected. prior at -0.754M
  • JN All Industries Activity Index at -0.9% vs. -0.3% expected. Prior at -1.1%

Despite a weak session in Asia, European markets have opened on a positive note. Particular focus will be on UK markets today, where we have the January Retail Sales at 10.30CET, expected to show a decent increase of 0.8%/3.6% MoM/YoY vs. -1.0%/2.6% in December. Analysts attribute this increase to consumers holding back in December and holding back before the January Sales. In addition, market participants are awaiting news from the ECB which could have an impact on the political scene in relation to a potential Brexit. We did not get any new information in yesterday’s communique from the ECB in the minutes of their January meeting on that front, so this might hold the key. Watch for any sudden moves in GBP-pairs (especially EUR/GBP).

Later today, the US will be in focus when the January CPI figures are released at 14:30CET. Consensus in the market point towards a lower headline yearly figure, while Core CPI is expected unchanged. This drop in the headline figure should be seen in relation to the falling energy prices. On back of recent data, where growth has been lacking while inflation pressure is increasing could lead to a difficult cocktail for the US in relation to setting an accommodative monetary policy while making the market believe in it. In EUR/USD, the pair has been dropping for the last five days in a row and selling pressure remains strong with key support at the previous break-out level at 1.1050-60 with 38.2% Fibo retracement in recent wave just below. A close below would open up for a test of the 1.0950-area. Although short term price action is negative, the 50-day MA crossing above the 100-day MA indicating that price action is accelerating to the upside and EUR-shorts are on the retreat in recent CFTC reports, which could give scope for a bounce higher.

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