GBP/USD registers largest monthly rise in a year, USD/JPY falls to two week low, as Fed appears to change monetary policy outlook

Feb 1 • Morning Roll Call • 1054 Views • Comments Off on GBP/USD registers largest monthly rise in a year, USD/JPY falls to two week low, as Fed appears to change monetary policy outlook

Sterling made significant gains versus several of its main peers during the early weeks of January, as FX market optimism developed, that the U.K. would avoid a no deal, hard Brexit. However, that optimism was tempered after Tuesday’s vote in the House of Commons. A vote that has emboldened the Tory govt. to approach the E.U. to ask for structural changes to the withdrawal offer, previously agreed between the E.U. and the Tories. GPB/USD has risen by approx. 2.8% in the month, whilst EUR/GBP has fallen by circa 3.5%.

During Thursday’s trading sessions, GBP/USD traded in a tight range, with a bias to the upside. Price oscillated between the daily pivot point and the first level of resistance, R1. At 8:00pm U.K. time the currency pair, often referred to as “cable”, was trading close to flat at 1.311. EUR/GPB traded down 0.30%, on the day at 0.872, as price breached S1, remaining above the monthly low, but significantly short of the high set in early January, when price breached the key handle of 92.00.

The euro traded lower across the board versus its peers on Thursday, after the Eurozone suffered several, challenging, economic blows, in the form of weak, economic, calendar data. As widely predicted by Reuters and other news agencies; the Italian economy registered its second, consecutive, quarter of negative GDP growth, coming in at -0.2% for Q4 2018, pushing the economy into a technical recession. GDP for the wider E.Z. came in (as forecast) at 1.2%, a significant fall from the 1.6% growth figure reported for Q3. Unemployment for the area failed to improve and at 7.9% the figure has remained stubbornly attached near to the 8% level, for several months.

Whilst the German economy is a powerhouse of manufacturing and industrial innovation, retail is still a highly significant sector of the economy. Data provided by Destatis on Thursday morning, revealed that Germany’s retail sector shrank dramatically in December. Monthly retail sales collapsed by -4.3%, missing the forecast of -0.5%. Year on year the figure is -2.1%, missing expectation of 1.5% growth. The plight of Deutsche bank impacted on the sentiment for the DAX index, the leading institutional bank is now admitting that a takeover may be its only method of moving forward.

Worrying comments from Bundesbank President Jens Weidmann late afternoon; that Germany’s economic slump will be deeper and longer than previously thought, with the Eurozone predicted to undershoot its 2019 inflation projection, capped a particularly gloomy day for Germany’s outlook. The various poor data published in relation to Germany’s economy over recent weeks, is lending weight to the theory that Germany might not be as hawkish, in relation to the U.K.’s Brexit, in comparison to several of its Eurozone partners. This may enable the U.K. to postpone its exit, past the March 29th deadline.

A potential issue was flagged up on Thursday, in relation to the relationship between the USA administration and the E.U. over Iranian sanctions, imposed by the Trump administration in 2018, as he trashed the agreement put together by the Obama administration. An agreement which encouraged the Iranians to limit nuclear activity, in return for being able to access global markets and sell energy.

The E.U. ignored the USA sanctions and maintained a relationship with Iran, which has caused consternation in Washington, who expect the E.U. to behave in a subservient and obedient manner. The potential disagreement had a moderate effect on the euro, EUR/USD traded down 0.28%, as the euro sold off across the board. The largest falls for the euro on the day, of approx. 0.50% on average, were registered versus: AUD, NZD and JPY.

The latest unemployment claims and the continuous claims numbers for U.S. citizens, were published by the BLS on Thursday afternoon. Both figures rose significantly and missed the Reuters forecasts by some distance. The forecasts may have been overly optimistic, failing to acknowledge the impact the government shutdown had, as it entered its fifth week. On Friday afternoon the BLS will publish more unemployment and employment data, most notably the latest NFP, jobs created metric. The shut down may have impacted on the momentum in the economy, whilst the boost of seasonal jobs is now over. The Reuters forecast is for 165K, which would represent a substantial fall from the 301K jobs, created in December 2018.

The SPX and NASDAQ indices were trading up at 9:00pm U.K. time; SPX traded up 0.69%, with the NASDAQ up 1.24%, at 7,274. When analysed on the daily time frame, the NASDAQ index has crossed the 100 daily moving average, a critical technical indication, which swing and position traders often look towards, to make medium to longer term, trading decisions. The NASDAQ, an index which contains the majority of USA based tech firms, is currently up approx. 10% in 2019, having reclaimed a substantial amount of the ground lost in late 2018, as the China trade wars intensified.


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