Europe Roundup: Sterling hits 2-month low against dollar, euro on Hard Brexit fears, dollar rebounds as U.S. Treasury yields retreat, European shares decline – Tuesday, January 10th, 2017

Market Roundup

  • USD/JPY -0.09%, EUR/USD +0.12%, GBP/USD -0.15%
  • DXY +0.02%, DAX +0.2%, Brent +0.6%, iron +8.0%, Gold +0.3%
  • HSBC Brexometer to gauge bal hard & soft Brexit: 0 = UK stays, 100 = hardest Brexit
  • Brexometer currently around 74-  HSBC sees cable at 1.10 if Brexometer rises to 100
  • EZ should be split into two with strong cluster around Germany and weak cluster including France, AfD
  • Corbyn-“Labour not wedded to freedom of movement for EU citizens in UK point of principle
  • Switzerland Dec Unemployment Adjusted 3.3% vs 3.3% previous, 3.3% expected
  • Switzerland Dec Unemployment Un/adjusted 3.5% vs 3.3% previous
  • France Nov Industrial Output 2.2% m/m vs -0.2%, +0.6% expected
  • JP Morgan CEO Dimon – Strong economy will speed interest rate hikes
  • UK Dec BRC like-for-like retail sales +1.0% y/y vs 0.6% previous
  • Japan Dec consumer confidence index 43.1, November 40.9
  • Toyota looks to invest $10 bln in the US over next five years – Nikkei
  • Japan Takeda set for fresh acquisitions after $5.2 bln US Ariad buy
  • Japan Mitsubishi Chemical to buy US carbon fiber plant – Nikkei
  • Australia Nov retail sales +0.2% m/m, +0.4% eyed, last +0.5%

Economic Data Ahead

  • (0815 ET/1315 GMT) Canadian Mortgage and Housing Corp will report housing starts for the month of December. The indicator stood at a seasonally adjusted annualized rate of 184,000 in the previous month.
  • (0830 ET/1330 GMT) The Statistics Canada is likely to report that building permits decreased 5.0 percent in November after rising 8.7 percent in October.
  • (1000 ET/1500 GMT) The U.S. Labor Department releases Job Openings and Labor Turnover Survey (JOLTS) report for the month of November. The report is expected to show that job openings rose to 5.6 million from 5.5 million in October.
  • (1030 ET/1500 GMT) The U.S. Census Bureau is likely to report that wholesale inventories rose 0.9 percent in November after posting a similar gain in October.
  • (1000 ET/1500 GMT) The U.S. Commerce Department is likely to show that sales at wholesalers rose by 0.5 percent in November.
  • (1000 ET/1500 GMT) The Investor's Business Daily (IBD)/ TechnoMetrica Institute of Policy and Politics (TIPP) will release U.S. Economic Optimism index for the month of January. The indicator rose to 54.8 in December.
  • (1630 ET/2130 GMT) API reports its weekly crude oil stock.
  • (1850 ET/2350 GMT) Japan releases Foreign Exchange Reserves report for the month of December.

Key Events Ahead

  • (1145 ET/1645 GMT)  FedTrade operation 30-year Ginnie Mae max $1.450 bln

FX Beat

DXY: The dollar recovered versus its major peers, as the U.S. treasury yields rebounded ahead of U.S. President-elect Donald Trump's news conference scheduled on Wednesday. The greenback against a basket of currencies traded 0.05 percent up at 101.89, having hit a low of 101.51 earlier in the day. FxWirePro's Hourly Dollar Strength Index stood at -87.14 (Slightly Bearish) by 1100 GMT.

EUR/USD: The euro rose above the 1.0600 handle, extending gains for the second consecutive session, as the dollar eased across the board. The major initially rallied to an 11-day high, however, it trimmed gains as the U.S. treasury yields turn positive across the curve. Moreover, the major was also strengthened by EUR/GBP cross, as the British pound weakened against its major peers. The European currency trades 0.14 percent higher at 1.0585, having hit a high of 1.0627 earlier in the session, its highest since Dec 30. FxWirePro's Hourly Euro Strength Index stood at 103.73 (Highly Bullish) by 1000 GMT. Any break above 1.06702 (61.8% retracement of 1.08735 and 1.03422) will take the pair to next level till 1.0745/1.0870. It should break below 1.0480 for minor weakness, while the minor support is around 1.0550/1.0500. On the higher side, any break above 1.0670 will take it till 1.0745/1.8000.

USD/JPY: The dollar retreated after declining to an intra-day low of 115.19, as the U.S. treasury yields turn positive across the curve amid prevalent risk-off sentiment. The major largely recovered on the back of growing prospects of further Fed rate-hike action in 2017, however, weaker sentiment surrounding equity markets kept the bid tone around the Japanese Yen's perceived safe-haven intact. The major trades 0.1 percent lower at 115.87, hovering away a low of 115.07 hit on Monday, its lowest since Dec. 14. FxWirePro's Hourly Yen Strength Index stood at -29.18 (Neutral) by 1000 GMT. The major resistance is around 116.58 (89- 4H EMA) and any break above will take the pair till 117.77 (76.4% retracement of 118.61 and 115.07)/118/118.65. On the lower side, minor support is around 114.98 (50% retracement of 111.35 and 118.66) and any break below targets 114.10/112.85.

GBP/USD: Sterling slumped to a 2-month low versus the dollar and euro as concerns about Britain's plans to leave the European Union intensified the selling pressure around the British currency. The major trades 0.1 percent lower at 1.2152, having hit an early low of 1.2107, it’s lowest since Oct. 25. Against the euro, the pound trades 0.3 percent down at 87.13 pence, after declining as low as 87.63 earlier in the session, its lowest since Nov. 10. FxWirePro's Hourly Sterling Strength Index stood at -21.36 (Neutral) by 1000 GMT. The minor resistance is around 1.2220 and any break above will take the pair till 1.2308/1.2365/1.2435. Any close above 1.2450 will take it till 1.2510/1.2550 (61.8% retracement of 1.27747 and 1.22005). On the lower side, short term support stands at 1.2080 and any break below will drag the pair down till 1.2000/1.19040 level.

USD/CHF: The Swiss franc advanced, extending gains from the previous session, as the greenback eased across the board on profit taking ahead of U.S. President-elect Donald Trump's first news conference. The dollar trades 0.16 percent down at 1.0135, having touched an intra-day low of 1.01107. FxWirePro's Hourly Swiss Franc Strength Index stood at 55.82 (Bullish) by 1000 GMT. Any break below 1.0050 will drag the pair down till 1/0.9909/0.9830 (200- day MA). On the higher side, a break above 1.0209 (89- 4H EMA) will take it till 1.0345/1.04180 (161.8% retracement of 1.03435 and 1.02179) in the short term.

AUD/USD: The Australian dollar rose to a near 4-week high earlier in the session, however, it failed to extend gains beyond, as reviving U.S. treasury bond yields renewed the buying interest around the U.S. dollar. Moreover, upbeat sentiment surrounding commodity lent further support for the major's strong bid tone. The Aussie trades flat at 0.7355, having hit a high of 0.7384, it’s highest since Dec. 15. FxWirePro's Hourly Aussie Strength Index stood at 112.06 (Highly Bullish) by 1100 GMT. On the higher side, any close above 0.7356 (200- 4H MA) will take the pair to next level till 0.7396 (38.2% retracement of 0.7783 and 0.7160)/0.7450. The minor support is around 0.7285 and a break below will drag it till 0.7260 (60 4H EMA)/0.7200.

NZD/USD: The New Zealand dollar eased after rising to a 4-week high, as the greenback recovered on the back of rebounding U.S. treasury yields.  The major trades 0.3 percent down at 0.6996, having hit a peak of 0.7047 earlier in the session, it’s strongest since Dec. 16. FxWirePro's Hourly Kiwi Strength Index was at -42.75 (Neutral) by 1100 GMT. Immediate resistance is located at 0.7050 (Dec 16 High), a break above could take it till 0.7100. On the downside, support is seen at 0.6960 (10-DMA), a break below could drag it lower 0.6950.

Equities Recap

European shares decline, weighed down by financial stocks, while Britain's FTSE 100 share index advanced to fresh record highs as the UK retailers gained.

The pan-European STOXX 600 index decreased 0.2 percent at 362.85 points, while the FTSEurofirst 300 index dropped 0.2 percent at 1,434.82 points.

Britain's FTSE 100 trades 0.14 percent up at 7,247.95 points, while mid-cap FTSE 250 eased 0.03 percent at 18,374.43 points.

Germany's DAX tumbled 0.08 percent at 11,555.18 points; France's CAC 40 trades 0.1 percent lower at 4,881.97 points.

MSCI's broadest index of Asia-Pacific shares outside Japan climbed 0.5 percent.

Tokyo's Nikkei dropped 0.79 percent to 19,301.44 points, Australia's S&P/ASX 200 index lost 0.78 percent at 5,762.30 points and South Korea's KOSPI slumped 0.18 percent to 2,045.12 points.

Shanghai composite index fell 0.3 percent at 3,161.67 points, while CSI300 index declined 0.2 percent at 3,258.27 points. Hong Kong’s Hang Seng added 0.8 percent at 22,744.85 points.

Commodities Recap

Crude oil prices slightly edged up, recovering some ground from previous session losses on optimism that planned output cuts agreed by OPEC and other producers would be implemented. International benchmark Brent crude was trading 0.4 percent higher at $54.92 per barrel by 0942 GMT, having hit a low of $54.72 on Monday, its weakest since Dec. 23. U.S. West Texas Intermediate crude rose 0.5 percent at $52.02 a barrel, after falling as low as $51.74 in the previous session.

Gold prices rose to their highest level in over 1 month, as a weaker U.S. dollar and as concerns of hard Brexit strengthened safe-haven buying. Spot gold was trading 0.3 percent up at $1,183.93 an ounce by 0944 GMT, after hitting its highest since Dec. 5 at $1,187.49 earlier in the session. U.S. gold futures climbed 0.2 percent to $1,187.20 per ounce.

Treasuries Recap

The U.S. Treasuries traded flat during a relatively quiet session light on significant economic data. In terms of Fed speakers, comments were seen from Boston Fed President Rosengren, San Francisco Fed President Williams and Atlanta Fed President Lockhart. Also, markets are eyeing 10-year bond auction and President-elect Donald Trump’s speech scheduled on Wednesday. The benchmark 10-year bond yields remained flat at 2.37 percent.

The UK gilts slumped as investors moved away from safe-haven buying amid gains in riskier assets including crude oil and equities, with the benchmark FTSE 100 index touching yet another record-high amid losses in the pound, following Brexit worries. The yield on the benchmark 10-year gilts, rose 1 basis point to 1.34 percent, the super-long 30-year bond yield climbed 1 basis point to 1.99 percent and the yield on short-term 2-year moved 1-1/2 basis points higher to 0.19 percent.

The German bunds traded nearly flat, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance. The yield on the benchmark 10-year bond, rose 1/2 basis point to 0.28 percent, the long-term 30-year bond yields barely climbed 1/2  basis point to 1.06 percent and the yield on short-term 2-year bond struggled at slightly higher than 1 basis point to -0.72 percent.

The Japanese government bonds traded narrowly mixed ahead of the super-long 30-year auction scheduled to be held on Wednesday. Also, the Bank of Japan’s (BoJ) first monetary policy meeting of 2017 remain in focus toward the end of this month. The benchmark 10-year bond yield, hovered around 0.05 percent mark, the long-term 30-year bond yields rose nearly 1 basis point to 0.74 percent and the yield on short-term 2-year note slid over 2 basis points to -0.23 percent.

The New Zealand government bonds rebounded at the closing session, following firmness in U.S. Treasuries. Also, China, a major trading partner posted softer consumer inflation for the month of December, which further extended support to New Zealand’s debt market. In intraday trading, the yield on the benchmark 10-year bond, plunged 6 basis points to 3.20 percent, the yield on 7-year note fell nearly 5 basis points to 2.85 percent and the yield on the short-term 2-year note slid 3-1/2 basis points to 2.22 percent.

The Australian government bonds slid as investors moved away from safe-haven instruments following weakness in the U.S. Treasuries. The yield on the benchmark 10-year Treasury note, jumped nearly 7 basis points to 2.44 percent, the yield on the 15-year note rose 5 basis points to 1.55 percent and the yield on short-term 2-year rose 5 basis points to 2.57 percent.

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