Summary:

  • Japanese yen leads the gains in G10 following quite a mixed package of the data
  • UK PM May faces a new dilemma as EU Barnier says “UK would have to abide by all existing and new laws for a period of almost 2 years after leaving”
  • AUD loses steam despite upbeat soft indicators, a key resistance in place

Looking through the G10 space in the morning one may notice that the Japanese yen is by far the strongest currency in spite of the fact that the data released overnight turned out equivocal. Along with the JPY the US dollar is also trading higher recouping its last week’s losses as the 10Y yield is trading clearly above 2.7% being an important reason why the greenback is getting back its appeal (just a day before the Federal Reserve meeting). Let’s summarize a package of Japanese readings before moving to the Brexit thread.

link do file download linkJapan’s retail sales rebounded in the last month which could bode well for household expenditure if sustained. Source: Macrobond, XTB Research

First and foremost, retail sales came in at 3.6% yoy beating the consensus set at 2.2% yoy and improving compared to the November’s print. Notice that even as real wage growth remains remarkably subdued, Japanese people were able to increase their outlays, however, bear in mind that it could have been a Christmas-fuelled effect hence it should be viewed with a dose of caution. On top of that, the jobless rate ticked up from 2.7% to 2.8% in December but the job-to-applicant ratio moved up from 1.56 to 1.59 confirming that the domestic labour market remains tight.

link do file download linkThe lows at around a 108 handle could encourage to enter a long. Technically the pair has been able to stay above a crucial support zone which might lead to a bounce once a short-term USD increase continues. Source: xStation5

While the JPY and the US dollar are the best ones in the G10, the British pound is lagging behind quite substantially. It’s trading ca. 0.35% lower against the greenback mainly on the back of the Brexit thread. What happened? EU’s chief negotiator Barnier said yesterday that the UK would have to abide by all existing and new laws for a period of almost two years after leaving. In response to that speech Downing Street wrote there was ’some distance’ between what the UK and EU believe is acceptable for the transition period signalling it would fight against having to submit to new laws. Even as the May’s stance could seem to be heroic, she may have no choice but to accept the bulk of the proposals from the EU. 

link do file download linkAustralian business conditions improved  in December. Source: Macrobond, XTB Research

Finally it’s worth paying attention to the Australian dollar which is trading decisively lower on the day despite upbeat readings of NAB soft indicators. Business conditions stayed unchanged at 13 (the prior print was revised up from 12) while business confidence improved from revised up 7 to 11. Underperformance of the AUD (down 0.35% at the time of writing) could stem from overall weakness commodity-related currencies. Notice that WTI prices are down over 1% in early trading after the last outstanding rally.

link do file download linkThe AUDUSD is reversing after testing a critical supple zone located below a 0.82 handle. The pair seems to be well positioned to keep on falling in the nearest future while bears could eye 0.7880 as their next target. Source: xStation5