Happy Valentine’s Day to those who have found their twin soul, not that markets care for love, but we do here at FXLeaders. Today, we had a number of GDP reports being released. It kicked off early in the Asian session with the Japanese GDP figures which missed expectations; the Japanese economy was expected to grow at 0.4% in Q4 of 2018 but the actual number came at 0.3%. What’s worse, the revision of Q3 which was lowered to -0.6% from -0.3% previously, so the expansion in Q4 doesn’t make up for the contraction in Q3.

Later when the European session started, the GDP report from Germany was released and it showed that the German economy fell flat in Q4 against a slight growth of 0.1% expected, having come from a 0.2% contraction in Q3. The producer price index PPI declined yet again by 0.7% in January, which is the fourth decline in three months, while the wholesale price index also declined by 0.7% in January after having declined by 1.2% in December.

Considering the miss in the German GDP figures this morning and the weakness we have seen in the Eurozone in recent months, I was expecting a miss in the Eurozone GDP figures as well. But, the economy of the Eurozone grew by 0.2% as expected in Q4 and by 1.2% year-on-year. The employment change increased by 0.3%, beating expectations of 0.2% which helped EUR/USD recuperate some of the losses induced by the German economic figures, as well as by some USD strength that has characterized markets in the last two days.

• German Q4 GDP – German economy shrank by 0.2% in Q3 but it was supposed to get back on track in Q4 and grow by 0.1%. That wasn’t meant to be and the economy fell flat at 0.0% in Q4, which I thought would affect the Eurozone GDP report later today.
• German PPI and WPI Inflation – The producer price inflation has been declining in four out of the last five months. Today it was expected to decline again by 0.4%, but it was worse, PPI declined by 0.7% in January, which makes this the fifth negative month in the last six ones. The wholesale price index also came at -0.7% in January after having declined by 1.2% in December.
• German Economy Ministry Still Feels Optimistic – German Foreign Ministry released its monthly bulletin and the headline comment said that the impetus from the domestic economy remains strong. But, Brexit and trade disputes are still causing uncertainty and indicators point to subdued development of exports in the coming months. Although, the construction boom is likely to continue given increase in orders and the private consumption likely to continue doing well.
• Eurozone GDP Report – The GDP growth has slowed down in Europe and it fell to 0.2% in Q3. Q4 was expected to be the same and the actual number came as expected at 0.2%. The employment change beat expectations coming at 0.3% against 0.2% expected. So, the German GDP miss didn’t affect the Eurozone economy.
• BOE’s Vlieghe Speaks – The BOE member Vlieghe said earlier today that he is surprised tht the UK government keeps pushing Breit decisions. The BOE would look closely at inflation expectations after a no-deal Brexit outcome and would need to act if inflation expectations become un-anchored. He continued saying that would do so even if it is politically unpopular. Other MPC members do not find it as useful to talk about interest rate path. Vlieghe does not see a very big gap between his view on rates and BOE’s inflation report.
• Theresa May Keeps No-Deal Brexit Option Open – The spokesman of the UK Prime Minister May made that comment earlier today. He added that today’s vote sends an important message to the EU. The government requires legally binding changes to the withdrawal agreement. May is expected to speak with other European leaders today.
• UK Brexit Secretary Speaking – Brexit Secretary Stephen Barclay is speaking at the British Parliament on this Brexit debate saying that the EU will be watching the vote today for signs of a weakening opposition. It is important that we have no-deal option on the table. The Parliament needs to ‘hold its nerve’ and send a clear message to Brussels.

The US Session

• US PPI Inflation – The producer price index turned negative in December falling by 02%. PPI was expected to turn positive again in January increasing by 0.1%, but it remained negative, declining by 0.1%. Core PPI excluding food and energy came at 0.3% against 0.2% expected. The previous month was revised higher to 0.0% from -0.1%. The final YoY PPI came at 2.0% versus 2.1% expected. Prior month stood at 2.5% while core YoY PPI excluding food and energy ticked higher to 2.6% versus 2.5%.
• US Unemployment Claims – The unemployment claims have been in a range around 210k for quite some time, but in the previous two weeks they increased above that range to 253k and 234k respectively. Last week’s claims were expected to fall in the range again, but they missed expectations and grew further to 239k.
• US Retail Sales – The retail sales posted a terrible number, missing expectations of a 0.1% growth and declined by 1.2% in December. Core retail sales number was even worse as they declined by 1.8% that month. This is the worst month since 2009 for retail sales and the worst one 2000 for core sales. Black Friday has attracted lots of buyers who seem to have run out of money for the holiday period.
• US Business Inventories – Business inventories increased by 0.6% in October. Today’s report will be for November and it is a month late to be released due to the government shutdown. Inventories are expected to come at 0.3%.

Trades in Sight

Bearish EUR/CHF

1. The trend has been bullish since January
2. The retrace is complete on the H4 chart
3. The 100 SMA is providing support

The 100 SMA is holding the decline for EUR/CHF

EUR/CHF has been trading on a bullish trend since early January although in the second half of this week we have see this pair make a bearish retrace lower. This retrace seems complete now since the stochastic indicator is overbought on the H4 chart. The 100 SMA (green) is also providing support to this pair, so I think I might go long on EUR/CHF soon.

In Conclusion

The market got a bit shocked by the US retail sales report which was pretty shocking to be honest. But, the shock has passed because the Black Friday has dried up all the cash in November and traders are aware of it. The USD decline has stopped for the time being but we will follow the price action today to see if the recent bullish trend of the USD will change.