The main global events have been driving market around this month, like the global economic slowdown, the trade war, Phase One deal between US and China, tensions between US and Iran, Brexit, other geopolitical tensions such as the attack on Saudi Arabia’s Oil producing facilities. Speaking of the last event, crude Oil jumped higher yesterday after reports of the attacks, but that was not anything major and crude Oil has resumed the bearish trend. But, today markets concentrated on economic events, such as the Bank of England meeting and the GDP release from the US for Q4 of 2019.

Markets were expecting a dovish BOE, after the general elections in the UK in December, with odds of a rate cut this time were 50/50. But, the BOE surprised us, leaving rates on hold and sounding less dovish than expected and BOE governor Mark Carney made some optimistic comments as well. Now the odds of a rate cuts have been pushed back for August and GBP/USD has turned bullish. The US economy grew by 2.1% in Q4 last year, as expected, but the details of the report were softer.

The European Session

• Eurozone Unemployment Rate and Consumer Confidence – Earlier today, we heard rumours from Bloomberg that the European Commission will say in the document – due to be published on 5 February – that the euro area is doing their fiscal policy wrong and that it doesn’t compel growth in the region. Although, we have seen some green releases from the economic data in recent months. Today the employment report was a bit better than expected and the confidence report was sort of mixed, as below:
  • Eurozone December unemployment rate 7.4% vs 7.5% expected
  • November Stod at 7.5%(unrevised)
  • Eurozone January final consumer confidence -8.1 vs -8.1 prelim
  • Economic confidence 102.8 vs 101.8 expected
  • Industrial confidence -7.3 vs -8.8 expected
  • Business climate indicator -0.23 vs -0.20 expected
  • Services confidence 11.0 vs 11.3 expected

   

• BOE Meeting – The Bank of England has been neutral last year but it shifted to dovish after the general elections in the UK last December. The uncertainty was keeping them on hold, but once things became clear and the UK is heading out of the EU for good, as well as a weak economy, the BOE turned dovish. Some economists were expecting a rate cut this month and odds were 50/50. But, they decided to remain on hold once again. Below are the BOE meting details:
  • BOE leaves bank rate unchanged at 0.75%; votes 7-2
  • Prior 0.75%
  • Votes 7-2 vs 6-3 expected
  • Asset purchase target £435 billion
  • Corporate bond target £10 billion
  • Guidance for limited, gradual tightening has been dropped
  • Haskel and Saunders dissented, voting to cut the bank rate by 25 bps
  • Growth outlook revised lower, inflation seen below target until end of 2021

   

• Carney’s Press Conference – BOE chairman Mark Carney held the usual press conference after the BOE meeting, making the following comments:
  • UK recovery appears to be on track
  • Survey data suggests UK economic activity has picked up sharply since the election
  • It is less of a case of ‘so far, so good’, than ‘so far, good enough’
  • It is important for hard data to follow through
  • Global growth is picking up, caution is warranted
  • Coronavirus is a reminder on the need to stay vigilant
  • Recovery in UK growth and inflation are not yet assured
  • Domestic price inflation appears to be muted
  • Core inflation has slowed
  • Margin of slack has been greater than previously estimated

The US Session

• US Q4 Advance GDP Report –  The US advance GDP report for Q4 of 2019 was released a while ago and the story here is that inflation numbers were soft, which has pushed up GDP above expected but nominal GDP was soft.
  • Prior quarter was +2.1%
  • Personal spending +1.8% vs +2.0% expected
  • GDP price index +1.4% vs +1.8% expected
  • GDP deflator +1.5% vs +1.8% expected
  • Business investment -1.5%
  • Home investment +5.8%
  • Business investment in structures -10.1%
  • GDP ex motor vehicles +3.0%
  • Year-over-year GDP +2.3%
  • Exports +1.4%
  • Imports -8.7%
• German CPI Inflation Report – The inflation figures from German regions/states started coming out early this morning and they indicated a soft inflation reading for December, although the YoY number came in higher than in the previous reading.
  • Germany January preliminary CPI -0.6% vs -0.6% m/m expected
  • Prior +0.5%
  • CPI +1.7% vs +1.7% y/y expected
  • Prior +1.5%
  • HICP -0.8% vs -0.7% m/m expected
  • Prior +0.6%
  • HICP +1.6% vs +1.7% y/y expected
  • Prior +1.5%

Trades in Sight

Bullish GOLD

• The retrace lower is over on the daily chart
• The trend has ben bullish for more than a year
• The 20 SMA is providing support
• The sentiment is still negative

The pullback lower ended at the 20 SMA

Gold has been mostly bullish in 2019 as the sentiment has been mainly negative, due to an escalating trade war and a slowing global economy. This year the bullish trend resumed again and we saw some major moves to the upside, especially as tensions between US and Iran increased in the Middle East. We did see a pullback down in the last few months of last year, as the sentiment improved due to the Phase One deal prospects between US and China. But that pullback ended at the previous resistance at $1,450, which turned into support.

Tensions decreased after the US didn’t follow through after Iran’s attack on US military bases in Iraq. As a result, Gold retreated lower, but it still remained above the 20 SMA (grey) on the daily chart and once that moving average approached close enough, buyers became confident and the upside momentum resumed again. The outbreak of the corona-virus in China turned the sentiment negative again in financial markets and fear turned the attention to safe havens again. As a result, the bullish momentum gained up pace and this time the climb continued, with the 20 SMA pushing Gold higher, The sentiment is expected to be negative and Gold should remain bullish in the meantime.

In Conclusion

The US GDP report for Q4 of 2019 showed that despite the economy keeping up the pace from Q3 of last year, which wasn’t that great. But, inflation numbers were soft, which has pushed up GDP above expected, so nominal GDP was soft. The USD has turned slightly bearish now, while the GBP has turned bullish after the BOE didn’t sound like they want to cut rates anytime soon.