After a rather choppy day yesterday as investors absorbed the surprise actions of the ECB in removing the collateral waiver on Greek bonds, markets regained some of their equilibrium
as the day wore on, helped in some small part by the ECB’s decision to allow the Central Bank of Greece an extra €59bn in Emergency Liquidity Assistance (ELA) funds to help offset the loss of the waiver.
Nonetheless markets continued to remain on edge as yesterday’s meeting between Greek finance minister Varoufakis and German finance minister Schaueble
only served to highlight the huge gulf between the two parties, given that they couldn’t even agree as to whether they disagreed.
It also serves to reinforce the urgency for a speedy agreement
about how best to proceed with some new measures to help the Greek economy move forward, given that the current approach is clearly not sustainable.
As for today Europe’s markets look set to open slightly lower heading into the weekend
with investors content to sit on the sidelines until the players in this little saga start to agree a narrative they all agree on, and move forward with.
On the data front yesterday’s surprise jump of 4.2% in December German factory orders data
bodes well for today’s industrial production data for December
, with expectations of a rise 0.4%, though this could well come in higher given the correlation sometimes seen between the two numbers.
In the UK the latest December trade balance
is expected to widen slightly to -£1.7bn from -£1.4bn
Away from the troubles in Europe the main focus today will be on the latest US employment report,
where we could well get further evidence that the US recovery is nowhere near as solid as some in the markets believe it to be.
Yesterday’s unexpected jump in the December trade deficit to $46.6bn
would seem to suggest that the Q4 GDP number was even weaker than the initial 2.6% posted last week.
If so that would further damage expectations for a summer rate rise
and given the weaker employment components seen in this week’s ISM numbers, there is a concern that markets are overestimating today’s January payrolls number. Expectations are for a rise of 230k new jobs in January, slightly down from the 252k seen in December, with the unemployment rate staying at 5.6%.
While a good jobs number will certainly embolden the US dollar bulls
, it is the average hourly earnings data that will garner most of the attention with an expectation of a rise from 1.7% in December to 1.9% in January.
A weaker wages number
could well have the potential to cause further US dollar weakness, indeed it would be surprising to see a significant jump in wages given some of the data seen in recent days.
We’ve already seen significant weakness in the prices paid components of the ISM numbers
which would seem to suggest that inflationary pressures continue to remain subdued, and if that remains the case then predictions about a potential rise in US rates will start to look even more premature than they already are now.
– despite a brief dip to 1.1300 yesterday the euro has rebounded and if we are able to break through the highs at 1.1533 we could well be set for a move towards 1.1700. While below 1.1540 we could drift back towards the 1.1380 level with the key support down at the 1.1205 level.
– yesterday’s break above the recent highs at 1.5270 could well be the catalyst for a move towards 1.5500. This move appears to have completed an inverse head and shoulders that could even extend to 1.5600. For this to unfold we need to hold above the 1.5250 level or we could slide back towards 1.5000.
– while below this week’s high at the 0.7590 level we remain susceptible to a move back towards the lows at 0.7400. Only a move below 0.7400 suggests a move towards 0.7255, which had originally been the peaks seen in 2003.
– continues to trade in a broad range between 117.00 and 119.00, despite a brief dip to 116.55 earlier this week, with the odds suggesting we could see a retest of the recent lows. The key support remains just above the 115.60 level as well as 116.20, which is also potential neckline support for a forming head and shoulders pattern. A break of 115.60 could well see a sharp fall towards 110.00.
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