· The safe-haven Japanese yen firmed and the Chinese yuan weakened on Thursday, as traders kept a wary eye on the spread of a virus in China, while the battered Australian dollar jumped after a surprise drop in unemployment.
The dollar hit its strongest in two weeks against the falling yuan, which traded at 6.9254 midsession.
The Japanese yen, seen as a haven by virtue of Japan’s position as the world’s largest creditor, rose 0.2% to a two-week high of 109.56 per dollar as investors sought safety.
Yields on benchmark 10-year U.S. Treasuries also edged lower to a two-week trough as bond prices rose.
The U.S. dollar was otherwise firm, rising a bit against the euro and kiwi and edging up to 97.552 against a basket of currencies.
Elsewhere, the Australian dollar, which has shed more than a cent this year as the domestic economy stalls, jumped 0.5% to $0.6879 after jobs data showed a surprising drop in unemployment to a nine-month low.
It settled back to $0.6866, but the strong number - the 28,900 jobs created in December was nearly double what analysts had expected - prompted an unwinding of bets that the central bank will cut rates next month.
· USD/JPY bulls finally cave in below 110 handle, bears look to 61.8% Fib
USD/JPY is trading at 109.64 within a range of between 109.59 and 109.86 in a relatively risk-off environment as the media headlines are full of the coronavirus as it spreads internationally. USD/JPY mutated into an offer, falling to the lost levels since 13th January, testing a support structure complied of Fibonacci and prior support and resistance that is likely to hold the initial test.
USD/JPY levels
A void of US data left for the week may mean that USD/JPY will be lower for longer before it can attract fresh demand for the next significant impulse to the upside and attention will be for a look in below support and the 21-Day moving average with eyes down to the 200-day moving average located at the next structure of support in the mid 108 handle which meets the golden ratio of the 61.8% target.
· EUR/USD is lacking a clear directional bias ahead of the all-important European Central Bank (ECB) rate decision.
The currency pair has been largely restricted to a narrow range of 1.1120-1.1070 since Jan. 17.
Status quo policy
The ECB is expected to keep interest rates and other key policy tools unchanged, having cut rates by 10 basis points to -0.5% in September 2019. Further, the bank restarted bond purchases in October.
Focus on strategy review
The highlight of Thursday's meeting would be the announcement of the official start of the strategy review. The scope and parameters for the review ( which could take a year) need to be set and could garner attention, according to City Index analysts.
The single currency may see big moves if President Lagarde drops a hint of a potential change in the definition of price stability and methods to achieve it.
Technical levels
A close below 1.1070 (support of trendline rising from October lows) would bolster the bearish setup represented by the lower highs, lower lows pattern created over the last three weeks and open the doors to 1.0981 (Nov. 29 low).
On the higher side, a close above 1.1173 (Jan. 16 high) is needed to invalidate the lower highs set up and confirm a bullish reversal.
· China’s central bank surprised financial markets on Thursday by keeping the interest rate on its targeted medium-term lending facility (TMLF).
The People’s Bank of China (PBOC) said on its website that it was keeping the rate on one-year TMLF loans at 3.15%, as it partially replaced loans maturing the same day.
· U.S. President Donald Trump on Wednesday threatened to impose high tariffs on imports of cars from the European Union if the bloc doesn’t agree to a trade deal.
In a separate interview in Davos with Fox Business Network, Trump said the tariffs on EU cars could amount to 25%.
· U.S. President Donald Trump vowed to rip up international trade deals and rebalance America’s global trade relationships.
Three years into his presidency, he has done just that, using a slew of tariffs, threats, and bilateral talks to shake up relations with nearly every major U.S. trading partner.
With a Phase 1 trade deal in hand with China, and a revamp of the North American Free Trade Agreement (NAFTA) complete at home, Trump is now turning his attention to Europe, post-Brexit Britain, and India.
· The World Health Organization (WHO) said it will decide on Thursday whether to declare a global emergency over the outbreak of a new flu-like virus spreading in and beyond China.
If it does so it will be only the sixth international public health emergency to be declared in the last decade.
· The severity of the rapidly spreading coronavirus outbreak in China that’s claimed more than a dozen lives is still unknown, and the extent of its spread will only be clearer after the Lunar New Year holidays, said David Roche of Independent Strategy said on Thursday.
“The bad news is that the worst has yet to come, as the number of new infections is still on the rise,” warned Larry Hu, economist at Macquarie Capital.
· ECB to launch review that will redefine its mission and tools
European Central Bank President Christine Lagarde is set to launch a broad review of its policy on Thursday that is likely to see her redefine the ECB’s main goal and how to achieve it.
The euro zone’s central bank has fallen short of its inflation target of just under 2% for years despite increasingly aggressive stimulus measures under Lagarde’s predecessor, Mario Draghi.
ECB rate-setters are not expected to make any policy change this week but simply stand by their pledge to keep buying bonds and, if needed, cut interest rates until price growth in the euro zone heads back to their goal.
· Despite all the efforts by former President Mario Draghi, inflation in the euro zone is still yet to move back to the European Central Bank’s target.
The central bank’s first strategic review since 2003 will analyze why that is the case and whether that target, or how its calculated, needs to change.
“The main focus (of Thursday’s ECB meeting) will be the question whether the current definition of price stability of close but below 2% is still appropriate,” said Michael Schumacher from Natixis in a research note.
“The discussion is obviously at an early stage and we don’t expect to get any further information at the upcoming meeting.”
· According to a new CNN poll released Wednesday, among Democrats and Democratic-leaning independents who are likely to vote in 2020, Sanders is now in the lead with 27 percent support compared to Biden’s 24 percent.
Both numbers fall within the 3.4 percent margin of error for the poll, which surveyed 1,156 respondents, so the two candidates are effectively tied for the lead. The second tier is made up of their nearest competitors — Massachusetts Sen. Elizabeth Warren and former South Bend, Indiana, Mayor Pete Buttigieg — who are each at least 10 points back from Biden. Much of the rest of the 12-candidate field is in single digits, and four candidates failed to garner even 1 percent support.
It’s the first time in the race that Biden has had to share the national lead with another candidate; even now, according to FiveThirtyEight’s national polling averages, Biden leads second-place Sanders by around 6 points, down from a margin of almost 20 points at his peak early in the summer. A national poll from Monmouth University, also released on Wednesday, found Biden leading Sanders by 7 points, 30 percent to 23 percent, with a 3.4 percent margin of error.
A few months back, Sanders’s prospects appeared to be dimming. Warren seemed to have the upper hand, and the Vermont senator was sidelined by an October heart attack. But Sanders surged after returning to the campaign trail, drawing coveted endorsements
· Oil prices fell to their lowest in seven weeks on Thursday, sliding more than 1% on concern that the spread of a respiratory virus from China may lower fuel demand if it stunts economic growth in an echo of the SARS epidemic nearly 20 years ago.
The new coronavirus has killed 17 people through respiratory illness since it emerged late last year in Wuhan, a city of 11 million people in central China.
Brent crude futures LCOc1 were down 87 cents, or 1.4%, to $62.34 a barrel by 0733 GMT, and earlier dropped to the lowest since Dec. 4 after falling 2.1% the previous session.
U.S. West Texas Intermediate futures CLc1 fell 94 cents, or 1.6%, to $55.80 a barrel after earlier falling to the lowest since Dec. 3. The contract declined 2.7% on Wednesday.
· WTI refreshes seven-week low to $56.05 after API data, EIA numbers in focus
Following the end of the settlement period for Wednesday, WTI was down more than 3.7% with a low of $56.05. Prices have recently dropped amid concerns of depleting demand and a rise in supply while also undermining geopolitical tension from the Middle East.
Markets will now focus on the official oil stock report from the EIA, up for publishing at 16:00 GMT. The inventory numbers concerning the week ended on January 17 indicate a decline of -1.117M bpd versus -2.549M bpd prior to the oil stockpile.
Technical Analysis
Given the black gold’s price break below 200-day SMA level of $57.65 as well as an upward sloping trend line since early October, at $58.40 now, the bears will target November month lows surrounding $54.90 during the further declines.
Reference: Reuters, CNBC, FX Street
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