US Session Forex Brief, Feb 11 – UK Economy Ends the Year in the Worst Place Possible
Skerdian Meta • 4 min read
The week kicked off this morning with a round of really important economic data from the UK. In fact, this is going to be a loaded week; tomorrow we have speeches from the ECB governor Draghi and the FED Chairman Powell, followed by inflation reports from the US and New Zealand as well as the RBNZ meeting. On Thursday, the Eurozone GDP report for Q4 of 2018 will be released in the morning, followed by the US retail sales and the PPI report from the US. We close the week off with Chinese inflation, the UK retail sales and the USD consumer sentiment.
Today we had the GDP report from the UK for December as well as for Q3, the trade balance report and the manufacturing report which included the industrial production and the construction output. All the numbers were horrible. The British economy grew by 0.2% in Q4 against 0.3% expected, but it shrank by 0.4% in December alone and the trend points to further contraction in the months ahead.
Total business investment fell by 1.4% in Q4 and the trade deficit increased. Manufacturing production posted a 0.7% decline in December and an even bigger decline for the entire year. The industrial production fell nearly 1% in 2018 while the construction output fell by nearly 3%. So, it was all a really horrible round of data and the GBP is lower today, but we are all waiting on Brexit and the next meaningful vote from the Parliament which is taking its time.
- China Hopes for Good Outcome in Trade Talks – China’s Foreign Ministry said commented early this morning with hopes of good results from the US-China meeting. Low-level trade talks begin today but the key meeting is the one between Lighthizer, Mnuchin and Chinese Vice Premier Liu He later in the week. Then will come the Trump-Xi after March 1.
- ECB De Guindos Still Feeling Positive on Inflation – The ECB vice President Louis De Guindos expects inflation to pick up in the medium term. But he expects Eurozone inflation to continue to slow in the next few months. He ended his speech saying that the ECB will be prudent in setting monetary policy.
- UK GDP Report – The British economy was expected to stagnate at 0.0% growth in December last year. Although, we saw that it contracted by 0.4 that month. The Q4 GDP 2018 report was expected to sow a 0.3% growth. It also missed expectations coming at 0.2%, but at least it still shows an expansion for the last quarter. Year-on-Year GDP was expected to tick lower to 1.4% from 1.5% in the previous reading but instead, it lost two points coming at 1.3%.
- UK Manufacturing Report – Manufacturing production was expected to increase by 0.2% in December but instead it declined by 0.7%. At least, the figures from November were revised higher to -0.1% from -0.3% previously. Manufacturing production year-on-year came at -2.1% against -1.1% expected. A very big contraction and what’s worse is the fact that the pace of contraction is increasing.
- UK Industrial Production –Industrial production MoM came -0.5% for December against +0.1% expected. The previous number was revised a tick higher though to -0.3% against -0.4%. Industrial production YoY came at -0.9% vs -0.5% expected. The prior numbers stood at -1.5% which was revised to -1.3% today. Worse than expected industrial production for the year, but better than the previous reading.
- UK Construction Output – Construction output for December came at -2.8% MoM vs +0.1% expected. The previous number was revised to +0.1% down from +0.6% prior. Construction output came at -2.4% YoY vs +1.5% prior. It stood at +3.0% but was revised lower to revised to +1.8%. Total business investment for Q4 came at -1.4% in Q4 against -1.0% expected – a major decline in investment which will show on the Q1 2019 data as it comes out.
The US Session
- Positive Comments on Trade From the US Sid Too – The White House advisor Kellyanne Conway is speaking on Fox News and he sounds confident regarding the trade talks between US and China. He said that it looks like US-China are getting closer to a deal.
- Meaningful Vote Gets Postponed – The UK PM spokesperson James Slack said a while ago that the meaningful Brexit vote won’t be held this week in the British Parliament. May will make a Brexit statement to parliament tomorrow and the Government committed to bring vote on Brexit deal as soon as possible. He ruled out Corbyn’s proposal on Brexit customs union with the EU and closed saying that the UK economy continues to grow and remains fundamentally strong.
- FED’s Bowman Speaks – The FOMC member Michelle Bowman is due to speak at the Annual American Bankers Association Conference for Community Bankers in San Diego later today. Hopefully she will give us some more insight regarding the monetary path of the FED before Chairman Powell speaks tomorrow.
Trades in Sight
- The trend has turned bearish last week
- The previous candlestick formed a doji
- The retrace higher is complete
- The 200 SMA is providing resistance
The retrace is complete on the H1 chart
EUR/CHF made a bearish reversal last week. It has been trading on this bearish trend since then, although today we saw a retrace higher during the Asian and the European session. But, the retrace is complete now as stochastic is overbought and the 200 SMA is providing resistance above. In fact, the downtrend seems to have resumed already after the doji candlestick. The stochastic indicator is also overbought, so we decided to short this pair now.
As we said, the week is full of important economic events. On top of that, the US-China trade talks are continuing and if we get positive comments from that, the sentiment will improve, supporting stock markets which have retraced lower at the end of last week.