- Consumer confidence in US continued to weaken in January.
- S&P 500 remains on the back foot after the report.
The Consumer Sentiment Index in the US fell to 79.2 in January from 80.7 in December, the University of Michigan's latest Surveys of Consumers showed on Friday. This reading came in lower than the market expectation of 80.
Further details of the publication revealed that the Current Economic Conditions Index declined to 87.7 from 90 and the Index of Consumer Expectations edged lower to 73.8 from 74.6.
Commenting on the report, "consumer sentiment posted trivial declines in early January despite the horrendous rise in covid-19 deaths, the insurrection, and the impeachment of Trump," said Surveys of Consumers chief economist, Richard Curtin. "Two offsetting shifts helped narrow the January loss in sentiment: the covid-19 vaccines and a partisan shift in expectations due to the anticipated impact of Biden's economic policies."
This market mood remains sour after this report. As of writing, the S&P 500 Index was last seen losing 0.55% on the day at 3,775.
- EUR/USD extends the weakness to the 1.2090 area.
- The risk aversion dominates the sentiment so far.
- US data releases came in on a mixed bag on Friday.
The euro keeps the negative view at the end of the week and forces EUR/USD to recede to weekly/yearly lows in the sub-1.2100 zone.
EUR/USD weaker on USD-buying
EUR/USD now accelerates the downside and tests the 1.2100 neighbourhood, or new 2021 lows, always on the back of the persistent buying pressure surrounding the buck.
In fact, diminishing US yields and the recent announcements by President-elect Biden regarding a new stimulus package worth around $1.9 trillion did nothing to temper the upside in the greenback, which is now approaching Monday’s YTD peaks near 90.70 when measured by the US Dollar Index (DXY).
Also collaborating with the risk aversion, US Retail Sales, Producer Prices, the U-Mich index and the Empire State index all came in short of expectations. On the opposite side of the road, Capacity Utilization, Industrial and Manufacturing Production all surprised to the upside.
What to look for around EUR
The upside momentum in EUR/USD run out of steam in the 1.2350 area earlier in the month. In spite of the corrective downside, the outlook for EUR/USD remains constructive and appears supported by prospects of a strong recovery in the region (and abroad), which is in turn underpinned by extra fiscal stimulus by the Fed and the ECB. In addition, real interest rates continue to favour the euro area vs. the US, which is also another factor supporting the EUR along with the huge, long positioning in the speculative community.
EUR/USD levels to watch
At the moment, the pair is losing 0.42% at 1.2100 and faces the next support at 1.2093 (2021 low Jan.15) seconded by 1.2058 (weekly low Dec.9) and finally 1.2032 (23.6% Fibo of the 2017-2018 rally). On the flip side, a break above 1.2349 (2021 high Jan.6) would target 1.2413 (monthly high Apr.17 2018) en route to 1.2476 (monthly high Mar.27 2018).
The German health ministry said on Friday that the European Union's member states have been told that Pfizer will miss coronavirus delivery targets for the next weeks, as reported by Reuters.
"Shortfall results from rebuilding work at Puurs, Belgium plant is designed to increase the capacity from February," the ministry further noted. "Germany expects the European Commission to ensure clarity and certainty regarding deliveries for the first quarter."
The market mood remains sour on Friday. The Eurostoxx 50 was last seen losing 0.93% while Germany's DAX 30 was down 1.15%.
- Wall Street's main indexes opened mixed on Friday.
- S&P 500 Energy Index is down more than 2%.
- Tech shares help Nasdaq Composite trade in the positive territory.
Major equity indexes in the US started the last day of the week mixed as investors assess President-elect Joe Biden's coronavirus relief plan and the latest macroeconomic data releases from the US. As of writing, the Dow Jones Industrial Average was down 0.65% on the day at 30,788, the S&P 500 was losing 0.33% at 3,782 and the Nasdaq Composite was up 0.2% at 12,924.
Late on Thursday, Biden announced that the recovery plan will be worth around $1.9 trillion and include $2,000 direct payments to Americans.
On Friday, the US Census Bureau reported that Retail Sales in December declined by 0.7%. On a positive note, the Federal Reserve's monthly publication revealed that Industrial Production expanded by 1.6%.
Among the 11 major S&P 500 sectors, the Energy Index is losing 2.4% pressured by a more-than-1% decline in crude oil prices. On the other hand, the Communication Services and the Technology indexes both trade in the positive territory, helping the tech-heavy Nasdaq Composite edge higher.
S&P 500 chart (daily)
- DXY stays well bid and navigates the 90.50/60 band.
- Moderate risk-off mood bolsters the demand for the dollar.
- Retail Sales contracted at a monthly 0.7% in December.
The greenback, in terms of the US Dollar Index (DXY), extends the upside further and trades at shouting distance from Monday’s tops beyond 90.70 on Friday.
US Dollar Index propped up by risk aversion
The index manages to leave behind Thursday’s “doji-like” session and grab further upside traction to the vicinity of the so far yearly peaks near 90.70 (January 11).
The upbeat tone in the buck is reinforced by the re-emergence of the risk aversion and comes despite US yields have deflated somewhat since recent tops and President-elect Biden unveiled intentions of pumping around $1.9 trillion to help the economic recovery and fight the pandemic under the form of another stimulus bill.
Plenty of data in the US calendar, with headline Retail Sales contracting more than expected at a monthly 0.7% in December and Core Sales also dropping 1.4% from a month earlier. Additional data also saw the NY Empire State index disappointing expectations at 3.50 for the month of January and Producer Prices rising less than forecast 0.3% MoM in December.
On the bright side of the docket, December’s Capacity Utilization ticked higher to 74.5%, Industrial Production expanded 1.6% MoM and Manufacturing Production gained 0.9%.
What to look for around USD
The index regained buying interest after bottoming out in the 89.20 area in the first trading week of the new year and managed to advance to the proximity of 90.70 earlier this week, where some relevant resistance turned up. The recovery in US yields keeps lending support to the greenback as investors continue to perceive a potential pick-up in inflation pressure/expectations in response to the most likely increment in fiscal stimulus under a Democrat White House. However, the outlook for the greenback remains fragile in the short/medium-term for the time being amidst massive monetary/fiscal stimulus in the US economy, the “lower for longer” stance from the Federal Reserve and prospects of a strong recovery in the global economy.
US Dollar Index relevant levels
At the moment, the index is gaining 0.34% at 90.55 and a breakout of 90.72 (2021 high Jan.11) would open the door to 91.01 (weekly high Dec.21) and finally 91.23 (weekly high Dec.7). On the other hand, immediate contention emerges at 89.20 (2021 low Jan.6) followed by 88.94 (monthly low March 2018) and the 88.25 (monthly low February 2018).
- Industrial Production in the US rose at a stronger pace than expected in December.
- US Dollar Index posts strong daily gains above 90.50 after the data.
Industrial Production in the United States expanded by 1.6% on a monthly basis in December, the US Federal Reserve reported on Tuesday. This print followed November's increase of 0.5% (revised from 0.4%) and came in better than the market expectation of 0.4%.
"For the fourth quarter as a whole, total industrial production rose at an annual rate of 8.4%."
"Capacity utilization for the industrial sector rose 1.1 percentage points in December to 74.5%, a rate that is 5.3 percentage points below its long-run (1972–2019) average."
The US Dollar Index continues to edge higher after this data and was last seen gaining 0.38% on a daily basis at 90.58.
- NY Empire State Manufacturing Index continued to decline in January.
- US Dollar Index clings to daily gains around 90.50.
The headline General Business Conditions Index of the NY Fed's Empire State Manufacturing Survey fell to 3.5 in January from 4.9 in December, the NY Fed's report revealed on Friday. This reading missed analysts' estimate of 6.
"The new orders index rose three points to 6.6, indicating a small increase in orders, and the shipments index fell to 7.3, pointing to a modest increase in shipments."
"The index for number of employees fell three points to 11.2, a level pointing to ongoing gains in employment."
"The index for future business conditions came in at 31.9, suggesting that firms remained optimistic about future conditions."
The US Dollar Index showed no immediate reaction to this report and was last seen gaining 0.27% on the day at 90.48.
- Annual Core PPI in US softened modestly in December.
- US Dollar Index clings to daily gains after the data.
The Producer Price Index (PPI) in the US for final demand rose to 0.3% on a monthly basis in December from 0.1% in November, the data published by the US Bureau of Labor Statistics showed on Friday. On a yearly basis, the PPI stayed unchanged at 0.8% as expected.
Further details of the report revealed that the Core PPI remained steady at 0.1% on a monthly basis but edged lower to 1.2% annually from 1.4% in November.
This report doesn't seem to be impacting the greenback's performance against its rivals. As of writing, the US Dollar Index was up 0.22% on the day at 90.44.
- Retail Sales in the US continued to fall in December.
- US Dollar Index stays in the positive territory near 90.50.
Retail Sales in the US fell by 0.7% in December to $540.9 billion, the data published by the US Census Bureau showed on Friday. This reading followed November's decline of 1.4% (revised from 1.1%) and came in worse than the market expectation of no-change.
"Total sales for the October 2020 through December 2020 period were up 4.0% from the same period a year ago."
"Retail trade sales were down 0.3% from November 2020 but 6.3% above last year."
This report was largely ignored by market participants and the US Dollar Index was last seen gaining 0.24% on the day at 90.45.
- EUR/USD adds to recent losses near the 1.2100 mark.
- Extra consolidation seems likely in the short-term.
EUR/USD extends the downside to the vicinity of 1.21 the figure, where some initial contention turned up.
The inability of sellers to drag the pair further south of the 1.2100 area in the near-term carries the potential to spark some consolidation ahead of the resumption of the bull trend that took EUR/USD to the mid-1.2300s earlier in the month.
On the broader picture, the constructive stance in EUR/USD remains unchanged while above the critical 200-day SMA, today at 1.1596.
Looking at the monthly chart, the (solid) breakout of the 2008-2020 line is a big bullish event and should underpin the continuation of the current trend in the longer run.
EUR/USD daily chart
European Central Bank (ECB) policymaker Yannis Stournaras said on Friday that there is a widespread view that many eurozone banks underestimate credit losses due to the coronavirus pandemic, as reported by Reuters.
"The asset quality of European lenders will be in the epicentre of supervisory action this year," Stournaras further added.
These comments don't seem to be having a significant impact on the shared currency's performance against its major rivals. As of writing, the EUR/USD pair was down 0.27% on a daily basis at 1.2123.
- Gold is fluctuating in a very tight range on Friday.
- XAU/USD could push higher if it manages to break above 200-SMA on H4 chart.
- Key support for gold is located at $1,817.
The XAU/USD pair registered small daily gains on Thursday but struggled to extend its recovery amid a lack of significant fundamental drivers on Friday. As of writing, the pair was up 0.15% on a daily basis at $1,849.
Gold technical outlook
On the four-hour chart, the Relative Strength Index (RSI) indicator is moving sideways a little below 50, confirming the pair's indecisiveness in the near term.
The initial resistance for gold aligns at $1,852, where the Fibonacci 23.6% retracement of the sharp decline seen from January 6 to 11 is located. Above that level, the 200-SMA is the next hurdle at $1,865. In the past seven trading days, XAU/USD failed to break above that level and if it manages to do so, it could target the next Fibo retracement level at $1,872.
On the other hand, key support seems to have formed at $1,817 (January 11 low). A daily close below that level could trigger a technical selloff and cause XAU/USD to extend its slide toward $1,800 (psychological level).
XAU/USD H4 chart
Dutch Prime Minister Mark Rutte and his government will resign over a childcare subsidy scandal that "drove thousands of families to financial ruin," Reuters reported on Friday, citing Dutch news outlet NOS.
There hasn't yet been an official confirmation of this news at the time of press.
The market mood remains sour following this development. As of writing, the Eurostoxx 50 and Germany's DAX 30 indexes were both down around 0.9% on the day. Meanwhile, the shared currency is struggling to attract investors and the EUR/USD pair is losing 0.3% at 1.2120.
S&P 500 uptrend is starting to lose momentum and support at 3765 needs to hold to suggest the immediate risk can still lean higher, economists at Credit Suisse report.
“The S&P 500 Index has again been unable to resume its uptrend and although a large bullish ‘outside week’ remains in place we are becoming concerned the risk is growing for a deeper pullback.”
“Support at 3777/65 needs to hold to suggest the immediate risk can still lean higher with resistance seen at 3807 initially, then 3827/23.”
“Above 3827/23 remains needed to ease the threat of a setback to reassert the uptrend with resistance seen next at 3866/68 and eventually the ‘measured triangle objective’ at 3900. “With a cluster of further Fibonacci projection resistances also seen here and stretching up to 3925/30, we maintain our call to look for a cap here for a fresh and likely we think protracted consolidation phase.”
“Below 3765 would suggest a more concerted pullback/consolidation can emerge for a slide back to 3748/38, potentially as far as 3705/3695, but with fresh buyers expected here. We shall though still maintain a tactical bullish bias whilst above the ‘outside week’ low at 3663.”
- USD/JPY is falling for the second straight day on Friday.
- Wall Street's main indexes look to open in the negative territory.
- 10-year US Treasury bond yield is down more than 2%.
The USD/JPY pair posted small daily losses on Thursday and continued to push lower on Friday with risk-off flows helping the JPY outperform its rivals. As of writing, the pair was trading at fresh daily lows, losing 0.14% at 103.64.
Eyes on US data, Wall Street
On Thursday, FOMC Chairman Jerome Powell's dovish remarks made it difficult for the greenback to find demand. Additionally, a sell-the-fact market reaction to Presiden-elect Joe Biden's $1.9 trillion coronavirus stimulus plan caused US Treasury bond yields to turn south and ramped up the bearish pressure on USD/JPY.
On Friday, the souring market mood, as reflected by a 0.4% drop in S&P 500 Futures and a 2.4% decline in the 10-year T-bond yield, is allowing the JPY to preserve its strength as a safe haven.
Meanwhile, the greenback is also taking advantage of the flight to safety with the US Dollar Index gaining 0.25% on the day at 90.45 and limiting USD/JPY's downside for the time being.
Later in the session, December Retail Sales and Industrial Production data from the US will be looked upon for fresh impetus. The University of Michigan will release its preliminary Consumer Sentiment Index report for January as well. More importantly, market participants will keep a close eye on the performance of Wall Street's main indexes. A sharp decline in the US stocks is likely to force USD/JPY to edge lower ahead of the weekend.
USD/JPY technical outlook
"The outlook is mixed and USD could trade between 103.00 and 104.40 for now," said UOB analysts. "Looking forward, the risk for a break of 104.40 first appears to be higher but USD could trade within the range for a while more.”
USD/JPY keeps the rangebound theme unchanged – UOB.
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