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U.S. equities recover to close in on positive gains for 2018, U.S. dollar index falls, FX price action is nonexistent, as major pairs trade in tight ranges

Feb 13 • Morning Roll Call • 46 Views • No Comments

The major U.S. markets and indices have now recovered much of the lost ground given up last week; the DJIA closed up 1.70%, SPX up 1.39% and the NASDAQ moved into positive territory for the year to date; up 1.57% on the day and 1.142 in 2018. The overall 10% market fall by the three main indices, which marks a technical correction, has now reduced to a circa 7.5% fall from the peak, with the DJIA now registering a -0.48% year to date loss for 2018 and the SPX -0.68%.

As the ten year Treasury bond yield slipped back from the 2.90% level on the day to 2.85%, interest rate rise fears have receded. Investors may have taken a cursory look at the YoY forecast for USA CPI inflation, due to be published on Wednesday, predicting a fall to 1.9% and taken the view that the selloff was overdone. According to USA market data, investors pulled a record $30.6bn from global equities funds last week during the selloff, with the U.S. experiencing particularly large withdrawals due to the intense volatility witnessed on Wall Street. Outflows from US stock funds totaled $34bn in the five trading days to Wednesday, according to EPFR data, representing the largest outflow since the 2008 banking crises. Markets may begin to see inflows quickly return over coming days. In a quiet day for USA economic calendar news the monthly budget statement missed forecast, by coming in at $49.2 billion for January.

The dollar index fell by approx. 0.3% during the day, as the dollar closed out the day down circa 0.3% v the euro and close to flat versus: the Swiss franc, U.K. pound and yen. Gold rose by approx. 0.5% to $1,324 per ounce, whilst WTI remained below the critical $60 a barrel. The ten year Treasury bond yield slipped back to 2.85%, after rising to a new four year high of 2.90% during the trading sessions. Across the board FX day traders will have struggled to pull profit out of a market in which the majority of the most popular trading pairs, especially the major pairs, exhibited very little in terms of price action. Most pairs traded sideways in tight ranges throughout the day’s trading sessions.

In a quiet day for European news the major indices also experienced significant rises, the U.K. FTSE 100 closed out the day up 1.19, DAX closed up 1.45% and the CAC up 1.20%. However, unlike its USA counterparts, European indices are still registering significant year to date falls, for example; the FTSE 100 is down -6.64% YTD. The only European economic calendar news of any real significance, concerned Swiss CPI for the month of January, beating the forecast of a fall of -0.2%, by coming in at -0.1% and registering a YoY rise of 0.7%. Swiss banking sight deposits remained stable. The euro posted approx. 0.3% gains on the day versus: the U.S. dollar, U.K. pound and Swiss franc. Other notable news, not listed on the economic calendar, came from the card processing firm Visa, who stated that U.K. retail spending fell by 4% in January, the largest January fall witnessed since the recession years, approximately a decade back; in 2008-2009.

STERLING

GBP/USD traded in a tight approx. 0.2% range, with a slight bias to the downside during the day’s trading sessions. Closing out the day down circa 0.1%, just below the daily PP at 1.383. GBP/CHF followed a similar pattern and sterling traded in a tight range versus all of its major peers, failing to register any gains on the day.

EURO

EUR/GBP traded in a tight bullish range of approx. 0.3% during Monday’s sessions, closing out up circa 0.3% on the day, at one stage breaching the first level of resistance R1, before closing out at 0.888. EUR/USD whipsawed through a tight range, rising through R1 in the morning European session, falling back through the daily PP, to then recover the R1 level, closing up circa 0.3% on the day at 1.229.

U.S. DOLLAR

USD/JPY traded in an extremely tight range of 0.1% during the day’s sessions, trading close to the daily pivot point, the major currency pair ended the day close to flat at 108.6. USD/CHF whipsawed in a tight range, oscillating between initial bearish conditions, to reverse momentum closing out the day up circa 0.1%, above the daily PP at 108.6. USD/CAD traded in a tight range, rising just above the daily PP, before giving up the gains, to close out the day down circa 0.1%, at 1.258.

GOLD

XAU/USD printed a low on the day of 1,317 and a high of 1,324, before ending at circa 1,327. Closing out up circa 0.5% on the day, the precious metal has reversed a series of daily losses that witnessed price fall to a multi week low of 1,314.

INDICES SNAPSHOT FOR FEBRUARY 12th.

• DJIA closed up 1.70%.
• SPX closed up 1.39%.
• FTSE 100 closed up 1.19%.
• DAX closed up 1.45%.
• CAC closed up 1.20%.

KEY ECONOMIC CALENDAR EVENTS FOR FEBRUARY 13th.

• GBP. Consumer Price Index (MoM) (JAN).
• GBP. Consumer Price Index (YoY) (JAN).
• GBP. House Price Index (YoY) (DEC).
• JPY. Gross Domestic Product annualised s.a. (QoQ) (4Q P).

HIGH IMPACT ECONOMIC CALENDAR EVENTS TO BE AWARE ON TUESDAY FEB 13th.

The latest U.K. CPI figures, both monthly and YoY, will be closely monitored when they’re released during the London – European session. The forecast is for a fall to -0.6% for January and a reduction to 2.9% YoY, from the current 3% figure. If the -0.6% fall is revealed then the reaction could be significant for GBP. The BoE suggested their monetary policy programme could change over the coming months; the governor of the Bank of England suggesting that interest rates could be higher and more frequent than his previous forward guidance had intimated due to short term inflationary pressures. However, if both CPI readings come in as forecast, then investors may translate the news as bearish for the pound, deducing that the BoE is under less pressure (in the short to medium term), to raise rates.

Late evening the other major high impact event of the day involves the latest GDP figure from Japan. The forecast is for a fall from 2.5% annualized QoQ to 1%, with the monthly figure coming in at 0.6% GDP growth for the Q4 of 2017. Should these forecasts come in as predicted, yen may come under pressure, as analysts and traders may come to the conclusion that it’s too early for prime minister Abe or the BOJ central bank, to develop hawkish tendencies. The govt and BOJ will perhaps consider suspending their previously broadcast intention; to adjust and taper their fiscal and monetary policies respectively.

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