US Session Forex Brief, Jan 11 – Brexit Might Be Delayed, GBP Gets Excited
Skerdian Meta • 4 min read
The main forex events during the European session today came from the UK. There was a round of important economic data, but we knew that wasn’t going to have much impact on the GBP because the whole country is focused on Brexit now that the deadline approaches. The UK GDP ticked higher to 0.2% in November but that’s still pretty weak. Construction output also increased, but the manufacturing production declined again in November, which is the fourth decline in five months.
The industrial production also declined that month, while the trade deficit grew further to -12 billion GBP. Although, the GBP ignored the data since Brexit talk took all the attention once again. Theresa May is desperate to pass the Brexit deal in the British Parliament next week. She is hoping for some more concessions from the EU, such as legal assurance on the Irish backstop. Apparently, the EU has sent a letter to May, possibly giving reassurances for the Irish backstop. Then, we heard rumours that Brexit might be delayed beyond March 29, which sent the GBP 150 pips higher.
As the US session got underway, we had the US inflation and earnings reports. Consumer Price Index (CPI) declined by 0.1% in December and the annualized number declined as well compared to last month’s report, but core inflation remained unchanged at 2.2%. Average weekly and hourly figures increased in December, so these reports leaned on the positive side for the USD.
The European Session
- Italian Industrial Production – Industrial production for October came at 0.1% in last month’s report, but it was revised to negative at -0.1% today. The production for November was expected to decline again by 0.3%, but it declined much more as the number came at -1.6%. This is the fourth decline in five months.
- A Possibility for No Brexit Says UK Foreign Minister – UK Foreign Minister Jeremy Hunt commented early this morning that there is another possibility coming into sight and that’s no Brexit at all. But, if we don’t deliver on Brexit, it would be a fundamental breach of trust, he added. There aren’t many alternative forms of Brexit available and the only Brexit is Prime Minister May’s Brexit deal.
- Juncker Tries to Help Theresa May – EU Commission President Juncker said earlier this morning that all energy is needed to help the Brexit deal pass. UK heading off without a deal would be disastrous. We heard later that him and Donald Tusk have sent a letter to the UK PM May where they say that the EU will set up assurances for the Irish backstop on Monday, but let’s not get carried away. We saw later that Reuters published an article citing an unnamed EU official who said that EU-UK contact to aid the Brexit deal is at all levels.
- UK Economic Data – The round of data from the UK was released this morning. The GDP came at 0.2% against 0.1% for November, while for the September-December period, the GDP ticked lower to 0.3% from 0.4% previously. Industrial production came at -0.4% in November against 0.3% expected, which makes it the second consecutive decline, while manufacturing production also declined in November by 0.3% against an increase of 0.4% expected, which makes this the fourth decline in 5 months. The index of services increased by 0.3% 3m/3m, but the trade balance came lower at -12 billion against -11.4 billion expected.
- ECB’s Nowotny Still Counting on A Rate Hike This Year – ECB member Ewald Nowotny said a while ago that he can still imagine a rate hike this year from the ECB. It is obvious that economic data has developed worse than expected recently, but the narrative outlined in the December meeting is still valid. He does not expect major policy changes in the near future.
- Italian Economy to Remain Weak in Near Term – Italian statistics office Istat released a note expecting the Italian economy to remain weak in the near future, which is not that surprising given the really disappointing data recently such as the terrible industrial production report this morning. So, I don’t think the Italian government can keep the promise to keep the deficit at 2.04% this year.
The US Session
- US Inflation Report – The headline US consumer price index (CPI) number came at -0.1% for December as expected, after falling flat in November and the YoY CPI number cooled off to 1.9% from 2.2% previously. But, the core inflation which is more important came at 0.2% for November as expected and the annualized core CPI remained unchanged at 2.2% as previous.
- US Earnings Report – Average hourly earnings YoY increased to 1.1% against 0.8% previously, while the weekly average earnings came at 1.2% as expected, up from 0.6% previously. So, this was a pretty good earnings report and the USD has turned higher.
- ECB’s Makuch Pessimistic On Eurozone Economy – Makuch said a while ago that economic growth has slowed and all indicators are pointing downwards. He added that optimism around Eurozone economy is somewhat weaker and all instruments remain on the table.
- Federal Budget Balance – The Federal budget balance has been pretty volatile, but most of the time it has been around the -$110b-$200b. The budget balance for November came at -$204.9 billion but it is expected to shrink today to just -$8.0 billion.
Trades in Sight
- The trend is bearish
- The retrace higher is complete
- An upside-down hammer is forming
- The 50 SMA is providing resistance
Resistance held once again in EUR/GBP
EUR/CHF has put up a bullish retrace higher in the last few days. It has climbed around 140 pips during this time, but it has run into the 50 SMA on the daily chart which is providing resistance to this pair. The daily candlestick is forming an upside-down hammer which is a reversing signal after the retrace higher. Besides, the stochastic indicator is almost overbought which means that the retrace is nearly complete.
The US Dollar had a minute of hesitation after the CPI inflation and earnings report released about an hour ago, which we covered live on our forex calendar by the way. But, it has climbed around 50 pips now on the better earnings figures I suppose. Although, let’s see if the Buck will be able to resume the bullish trend now.