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USD gains in quiet trade, Gold shines

Vantage Updated Updated Mon, 2024 January 15 10:14

Headlines

* China steps up Taiwan isolation after weekend election

* Fed tiptoes toward dialling back key channel of monetary tightening

* Safe haven gold gains on renewed Fed rate cut bets

* Bank of Canada survey shows inflation expectations are coming down

FX: USD found a mild bid butwas rangebound again. The broader trading range on NFP day on January 5 still holds. It was a holiday in the US, so volumes were light. Market have seen modestly hotter than expected major data (NFP, CPI) but March rate cut odds remain currently above 70%. Fedspeak has also pointed to this pricing being optimistic, yet it remains steadfast for now.

EUR printed a doji denoting the light liquidity. A technical recession was avoided in Germany as Q4 GDP data fell 0.3% q/q. But the prior three months were revised one-tenth higher to flat from -0.1%. The midpoint of the December rally sits at 1.0931.

GBP was the second best performing major after the euro in holiday trade. The pound is currently sat roughly in the middle of the 1.26-1.2828 range. It’s the middle of the month which means a UK data dump. Wage growth is key tomorrow, CPI on Wednesday and retail sales comes out on Friday.

USD/JPY rose as the yen underperformed its major peers. The halfway point of the November decline is at 146.07 with the 50-day SMA at 146.17. Japan CPI is released on Friday and expected to soften further in line with the Tokyo data from last week.

AUD fell for a third day in a row. Prices are close to the NFP spike low at 0.6640. A major Fib level of the October rally sits at 0.6641 to reinforce this area of support. Focus will turn to this week’s jobs data on Thursday. High beta FX were the worst major performers on weak risk sentiment.

Stocks: US equities were closed for Martin Luther King Day. Earnings pick up this week with 23 companies listed on the benchmark S&P 500 releasing their Q4 results. Goldman Sachs and Morgan Stanley arrive at the same time today before the US open. It’s been a lacklustre start by the banks so far with a combination of both disappointing earnings and for some, weaker than forecast guidance.

Asian futures are in mixed. APAC stocks were rangebound with few major drivers and the extended US weekend. The Nikkei 225 briefly hit 36,000 for the first time since 1990.

Gold climbed for a third straight day as the risk mood was muted. Brent crude traded lower before retracing all its losses, though it remains below $80.

Day Ahead Data Focus UK Jobs

A bunch of UK data kicks off with the employment numbers for December. The jobless rate is seen steady at 4.2% but focus will be on earnings growth. Both measures are predicted to fall to 6.7%, which is encouraging for the BoE. Pay growth is finally turning lower and losing momentum. More of this disinflation is needed to help suppress high services inflation. We get that reading on Wednesday and these are two key metrics for the MPC.

Chart of the Day USD/CAD rebound continues

The latest Canada CPI figures are released later today. November saw an unchanged print at 3.1% y/y. This is a higher than the 2.8% figure recorded back in June, signalling a stalling of the progress in getting inflation back down to the Bank of Canada’s 2% target midpoint. That said, underlying measures of inflation have continued to decline, so any further drop in the core figures could offset an unexpectedly hot headline number.

The loonie could recoup some of its year-to-date losses against the greenback if CPI heads in the wrong direction again. But for the major to be able to resume its medium-term downtrend, much will depend on how Fed expectation, risk sentiment and oil prices evolve in the coming weeks. Resistance above sits at 1.3453 and 1.3479.