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Europe Roundup: Sterling hits 4-month top above 1.3600, euro at 3-year peak on ECB tapering speculations, European shares rally - Friday, January 12th, 2018

Market Roundup

  • Brazil Nov service sector growth yy decrease to -0.7 % (forecast -1.3 %) vs previous -0.3 %
     
  • Brazil Nov service sector growth mm increase to 1 % (forecast 0.8 %) vs previous -0.8 %
     
  • Italy Nov industrial output yy wda decrease to 2.2 % (forecast 3.3 %) vs previous 3 % (revised from 3.1 %)
     
  • German coalition paper - parties commit to developing common positions with France on all important questions of European and international politics
     
  • German coalition paper - parties commit to strengthening eurozone in close partnership with France
     
  • German coalition party leaders reach breakthrough in coalition talks - party sources
     
  • German conservatives and SPD want to gradually do away with solidarity tax - coalition blueprint

Economic Data Ahead

  • (0830 ET/1330 GMT) The U.S. Commerce Department is expected to report that retail sales edged up 0.4 percent in December after advancing 0.8 percent in November. While excluding autos, retail sales are likely to have gained 0.4 percent, after surging 0.1 percent in the previous month.
     
  • (0830 ET/1330 GMT) The U.S. consumer price index likely increased 0.2 percent in December after rising 0.4 percent in November, while in the 12 months through December,  the CPI is expected to have risen 2.1 percent.  Excluding food and energy, the core CPI probably rose 0.2 percent, compared to a 0.1 percent gain in the month before.
     
  • (1000 ET/1500 GMT) The U.S. Commerce Department is expected to report that business inventories rose 0.3 percent in November, after falling 0.1 percent in October.
     
  • (1000 ET/1500 GMT) The Investor's Business Daily (IBD)/ TechnoMetrica Institute of Policy and Politics (TIPP) will release U.S. Economic Optimism index for the month of January. The indicator rose to 51.9 in the previous month.
     
  • (1300 ET/1800 GMT) Baker Hughes reports U.S. Oil Rig Count. 
     

Key Events Ahead

  • (1615 ET/2115 GMT) Federal Reserve Bank of Boston President Eric Rosengren gives his first comments of the year on the economic outlook and receives the GIC Frederick Heldring Award for Global Leadership at the "Money, Models and Digital Innovation" conference co-sponsored by the Global Interdependence Center, in San Diego, California.

FX Beat

DXY: The dollar index slumped to 4-month lows as weak U.S. producer prices data tempered expectations that inflation will accelerate in 2018. The greenback against a basket of currencies traded 0.6 percent down at 91.37, having touched a low of 91.31 earlier, its lowest since Sept. 8. FxWirePro's Hourly Dollar Strength Index stood at -121.32 (Highly Bearish) by 1000 GMT.

EUR/USD: The euro surged above the 1.2100 handle to a 3-year high, on growing expectations that the European Central Bank hinted is set to wind down its 2.55 trillion euro ($3.07 trillion) bond purchase scheme this year if Europe's economy continued to grow. Moreover, news that German Chancellor Angela Merkel's conservatives and the Social Democrats had agreed on a blueprint for formal coalition negotiations supported the upside. The European currency traded 0.7 percent up at 1.2128, having touched a high of 1.2136 earlier, its highest since Dec. 31 2014. FxWirePro's Hourly Euro Strength Index stood at 112.76 (Highly Bullish) by 1000 GMT. Immediate resistance is located at 1.2140, a break above targets 1.2220. On the downside, support is seen at 1.2007 (10-DMA), a break below could drag it lower 1.1982 (5-DMA).

USD/JPY: The dollar declined to 1-1/2 month lows on the back of a report that the U.S. producer prices fell for the first time in nearly 1-1/2 years in December and news that German party leaders have reached a breakthrough in coalition talks. The major was trading 0.2 percent down at 111.05, having hit a low of 111.04 earlier, its lowest since Dec. 28. FxWirePro's Hourly Yen Strength Index stood at 49.61 (Neutral) by 1000 GMT. Investors’ will continue to track broad-based market sentiment, ahead of the U.S. retail sales, consumer price index and business inventories. Immediate resistance is located at 111.57 (23.6% retracement of 111.00 and 113.38), a break above targets 111.91 (38.2% retracement). On the downside, support is seen at 111.00 (Session Low), a break below could take it near 110.84 (Nov. 27 Low).

GBP/USD: Sterling rallied to a 4-month peak above the 1.3600 handle as investors sold the greenback against a basket of peers following strong euro gains. However, the British pound lost ground against the European currency on ECB tapering bets. Sterling traded 0.6 percent up at 1.3617, having hit a high of 1.3620 earlier; it’s highest since Sept. 20. FxWirePro's Hourly Sterling Strength Index stood at 23.38 (Neutral) by 1000 GMT. Immediate resistance is located at 1.3660, a break above could take it near 1.3700. On the downside, support is seen at 1.3481 (Jan 10 Low), a break below targets 1.3450. Against the euro, the pound was trading 0.2 percent down at 89.03 pence, having hit a low of 89.26 pence earlier, it’s lowest since Nov. 28.

USD/CHF: The Swiss franc advanced to a 10-day high as the greenback against a basket of six major rivals declined to its weakest in four months. The major trades 0.5 percent down at 0.9708, having touched a low of 0.9701 earlier, it’s lowest since Jan. 2. FxWirePro's Hourly Swiss Franc Strength Index stood at 7.69 (Neutral) by 1000 GMT.  On the higher side, near-term resistance is around 0.9855 (trendline resistance) and any break above will take the pair to next level till 0.9900/0.9970 (Dec 8th, 2017 high)/1.000. The near-term support is around 0.9700 and any close below that level will drag it to next level till 0.9670.

AUD/USD: The Australian dollar declined, driven down by a bout of profit-taking after the rates reached fresh four-month tops. The major failed to benefit from better Chinese trade data, broad-based US dollar weakness, and higher copper prices.  The Aussie trades 0.2 percent down at 0.7874, having hit a high of 0.7904 earlier; it’s highest since Sept. 26. FxWirePro's Hourly Aussie Strength Index stood at -39.84 (Neutral) by 1000 GMT. Immediate support is seen at 0.7851 (5-DMA), a break below targets 0.7814 (Jan 4 Low). On the upside, resistance is located at 0.7940, a break above could take it near 0.7990.

Equities Recap

European shares rose, boosted by gains in the auto sector, while the euro rallied above the 1.2100  handle to 3-year high on growing expectations that the European Central Bank hinted is set to wind down its massive monetary stimulus programme.

The pan-European STOXX 600 index rallied 0.2 percent to 397.45 points, while the FTSEurofirst 300 index edged up 0.05 percent to 1,563.90 points.

Britain's FTSE 100 trades 0.2 percent higher at 7,779.23 points, while mid-cap FTSE 250 rose 0.6 percent to 20,867.38 points.

Germany's DAX rose 0.1 percent at 13,218.33 points; France's CAC 40 trades 0.1 percent up at 5,494.25 points.

Commodities Recap

Crude oil prices steadied just below the December-2014 highs touched the previous day amid ongoing production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia. International benchmark Brent crude was trading flat at $69.15 per barrel by 1011GMT, having hit a high of $70.01 the day before, its highest since Dec. 2014. U.S. West Texas Intermediate was trading 0.2 percent down at $63.41 a barrel, after rising as high as $64.75 on Thursday, its highest since Dec. 2014.

Gold prices rallied for a third straight session to hit their highest since September, as a fall in the U.S. dollar drove the safe-haven metal towards its fifth-straight weekly gain. Spot gold rose 0.7 percent to $1,330.77 an ounce by 1012 GMT, after touching its highest since Sept. 15 at $1,332.31 earlier. U.S. gold futures were up 0.5 percent at $1,329 an ounce.

Treasuries Recap

The U.S. Treasuries slumped ahead of the country’s consumer price-led inflation index for the month of December and retail sales for the same period, scheduled to be released today by 13:30GMT. The yield on the benchmark 10-year Treasuries jumped nearly 2 basis points to 2.54 percent, the super-long 30-year bond yields rose 1 basis point to 2.87 percent and the yield on the short-term 2-year traded 1-1/2 basis points higher at 1.98 percent.

The UK gilts traded tad lower amid lack of economically significant data through the day. However, the fall was slightly offset by previous gains, following growing possibilities of a 'no-deal' Brexit, although recently some optimism had spiked up as the negotiations moved to the second phase. The yield on the benchmark 10-year gilts, rose close to 1 basis point to 1.32 percent, the super-long 30-year bond yields hovered around 1.83 percent and the yield on the short-term 2-year traded 1/2 basis point higher at 0.56 percent.

The German bunds remained narrowly mixed as investors remained side-lined in any major trading activity amid a silent session that witnessed no data of major economic importance. The German 10-year bond yields, which move inversely to its price, hovered around 0.52 percent, the yield on 30-year note slid 1-1/2 basis points to 1.33 percent and the yield on short-term 2-year traded nearly flat at -0.56 percent.

The New Zealand government bonds surged on the last trading day of the week as investors remained side-lined in any major trading activity amid lack of major economic data. At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, slipped 1-1/2 basis points to 2.87 percent, the yield on 20-year slumped 2 basis points to 3.34 percent and the yield on short-term 2-year ended 2-1/2 basis points lower at 1.98 percent.

The Australian government bonds slumped following board weakness in the U.S. Treasuries. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped 2 basis points to 2.73 percent, the yield on the long-term 30-year note rose nearly 1 basis point to 3.43 percent while the yield on short-term 2-year slumped 2 basis points to 2.04 percent.

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