Daily Roundup – Markets review
There has been a fairly quiet end to the week’s trade although one notable stand-out has been USD/JPY. The pair surged yesterday on the back of the better than expected US Q4 GDP print, pushing out to fresh highs for the year as a result. Given the fact this print reinforced Jerome Powell’s more hawkish than the market bias in this weeks’ testimony and the fact that maintaining lax monetary policy at the Bank of Japan has also been reiterated, the variation appears well justified. Add to this that questions are now being asked over the US-China trade deal, plus Donald Trump has suggested he’s willing to walk away without an agreement in place, and further near term gains could be seen here, too.
That better than expected US GDP print also heaped downside pressure on the Aussie Dollar during yesterday’s session, with AUD/USD now rapidly heading towards those lows for the year (excluding the flash crash) around 0.7050. A breakthrough in the China trade deal would have the potential to drive the pair significantly higher in the near term, but given that slight hawkish bias in the US GDP reading, sustaining gains could well prove difficult.
Eurozone inflation will be front of mind in the coming hours. The German print managed to beat expectations yesterday although continues to sit well below target, so another disappointing reading will underline the idea that the ECB may well have now completely missed the opportunity to try and normalise monetary policy in the current economic cycle.
Another data point to watch will be the PCE deflator, the Fed’s preferred measure of inflation. That’s forecasting a print of 1.7%, but given yesterday’s impressive GDP print, if this impresses it’s going to continue increasing pressure on the Fed to think about resuming the rate hike process before the year end in turn holding upside for the dollar – and likely taking a toll on US equity indices, too.
EUR/JPY is currently testing the 50% retracement of the September-January sell off. Look for a move higher to pave the way for a return to the 61.8% retracement level then December resistance around 128.60 then 129.30 respectively.