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FXStreet reports that a more than half a million barrels per day (bpd) cut agreed by the OPEC technical committee will remove some downtrend strain but is not seen as bullish in the opinion of analysts at TD Securities.

“OPEC's technical committee decided on a 600k bpd cut recommendation after an extra day of talks, but Russia is still reluctant, wanting more time to assess the impact of the virus.”

“This amount of cut, along with support from Libyan and Iraqi disruptions, may be enough to prevent a major rout but it is unlikely to be seen as bullish by the market with numbers closer to 1m bpd being referenced given the severity of the demand hit.”

“The completion of a CTA selling program will remove some downward pressure in WTI crude going forward, but we expect algos to play catch-up in Brent crude and gasoline.”

Carsten Brzeski, ING's Chief Economist in Germany, notes that the country's new industrial orders dropped by 2.1% month-on-month in December, from -0.8% in November (revised upwards from -1.3% MoM). 

"On the year, new orders were down by a dire 8.7%. New orders fell in eight of the last twelve months. According to the statistical agency, the December drop was mainly due to a big decrease in orders from other Eurozone countries (-13.9% MoM). Foreign orders excluding the Eurozone were up by 2.1% and domestic orders increased by 1.4%.

The great order book deflation in German industry continues. In fact, 2019 was not only the worst year for industrial orders since 2008, it was also the first time since 2002 that German order books shrank for two years in a row. While 2018 was mainly about weaker foreign orders, order book deflation has now reached the domestic economy with domestic orders dropping faster than foreign orders.

While the headline number remains horrible, the second consecutive increase in domestic orders as well as a pick-up in non-Eurozone orders could be considered tentative signs of a bottoming out. In our view, very tentative. In fact, while somewhat better confidence indicators and hope for relief on the back of the phase one trade deal had given hope for a bottoming out of the German manufacturing slump in coming months, the coronavirus should postpone this. No matter how the spread of the virus to Europe will evolve, the sheer impact on the Chinese economy will be enough to affect German industry and delay any rebound. Particularly the German automotive and engineering industries’ supply chains are well integrated and dependent on China.

As hard and as much as we try, we cannot make the short-term outlook for the German industry look any better than it currently is: dire. "

FXStreet reports that TD Securities strategists inform old’s appetite is set to continue once the yellow metal has made a thin come back this morning.

“The yellow metal has bounced off $1550/oz support to trade slightly higher this morning, even as risk appetite continues to firm and equities reach record levels once again.”

“The rush of safe-haven buying has likely reversed, with some further liquidations from the record stockpile of ETF holdings and extended positioning not off the table.”

“We expect that the structural growth in investment demand for the yellow metal, along with continue suppression of real rates across the globe will keep the gold bug alive in 2020.”

FXStreet reports that analysts at TD Securities predict the EUR/USD pair is set to lose the support level at 1.0980 following signs of deterioration in Germany.

“The region's economy continues to show signs of further deterioration as the German factory orders reading for December confirms. These fell -2.1% m/m in December against a consensus forecast for a +0.6% rise.”

“The ECB continues to remind investors that their monetary policy toolbox is nearly empty. The ECB president declared that this ‘low interest rate and low inflation environment has significantly reduced the scope for the ECB and other central banks worldwide to ease monetary policy in the face of an economic downturn’.”

“We think the 1.0980/90 support zone in EUR/USD may not hold much longer. A solid US employment reading tomorrow could easily send the pair below 1.0950 to put a test of the early October (multiyear) low at 1.0879 into view.”

• Notes his outlook for growth would be even firmer if not for Boeing and coronavirus situations
• Says having a little more trade stability will help global growth this year, less uncertainty should help stabilize business fixed investment
• Estimates virus could subtract around 0.4 percentage points from growth

U.S. stock-index futures rose on Thursday, supported by China's decision to halve tariffs on hundreds of U.S. imports worth around $75 billion, which bolstered hopes the economy could avoid a major shock from the coronavirus outbreak.

Global Stocks:

FXStreet reports that economist at UOB Group Lee Sue Ann believes the RBNZ will keep the policy rate unchanged at 1.0% at its February meeting.

“The latest 4Q19 inflation numbers would add some cheer to the RBNZ. At 1.9%, inflation is very near the midpoint of the 1%-3% target band. The RBNZ had forecast a quarterly increase of 0.2% in its November monetary policy statement, which would have taken the annual rate to 1.6%. We expect the upside surprise will allow the RBNZ to sit tight when it releases its next monetary policy statement on 12 February.”

(company / ticker / price / change ($/%) / volume)

Pfizer (PFE) initiated with a Buy at Mizuho

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell last week, indicating the labor market remains very robust.

According to the report, the initial claims for unemployment benefits decreased by 15,000 to a seasonally adjusted 202,000 for the week ended February 1, the lowest level since April 2019.

Economists had expected 215,000 new claims last week.

Claims for the prior week were revised upwardly to 217,000 from the initial estimate of 216,000.

Meanwhile, the four-week moving average of claims dropped by 3,000 to 211,750 last week, also the lowest reading since last April.

The preliminary data from the U.S. Labour Department showed on Thursday that nonfarm business sector labor productivity in the United States increased 1.4 percent q-o-q in the fourth quarter of 2019, as output advanced 2.5 percent q-o-q and hours worked climbed 1.1 percent q-o-q (seasonally adjusted).

That was below economists' forecast for a 1.6 percent q-o-q gain after an unrevised 0.2 percent q-o-q drop in the third quarter.

In y-o-y terms, the labor productivity rose 1.8 percent in the fourth quarter, reflecting a 2.7-percent jump in output and a 0.9-percent advance in hours worked.

Meanwhile, unit labor costs in the nonfarm business sector in the fourth quarter rose 1.4 percent q-o-q compared to an unrevised 2.5 percent q-o-q surge in the prior quarter.

Economists had forecast a 1.4 percent gain in fourth-quarter unit labor costs.

Unit labor costs quarterly increase reflected a 2.8-percent surge in hourly compensation and a 1.4-percent advance in labor productivity.

Compared to the corresponding period of 2018, unit labor costs rose 2.4 percent.

Qualcomm (QCOM) reported Q1 FY 2020 earnings of $0.80 per share (versus $1.20 per share in Q1 FY 2019), missing analysts' consensus estimate of $0.86 per share.

The company's quarterly revenues amounted to $5.077 bln (+4.9% y/y), beating analysts' consensus estimate of $4.856 bln.

QCOM fell to $89.27 (-1.80%) in pre-market trading.

Twitter (TWTR) reported Q4 FY 2019 earnings of $0.15 per share (versus $0.31 per share in Q4 FY 2018), missing analysts' consensus estimate of $0.17 per share.

The company's quarterly revenues amounted to $1.007 bln (+10.8% y/y), beating analysts' consensus estimate of $0.995 bln.

The company also issued in-line guidance for Q1 FY 2020, projecting revenues of $825-885 mln versus analysts' consensus estimate of $872.36 mln.

TWTR rose to $36.23 (+8.51%) in pre-market trading.

CNH and AUD appreciate against other major currencies as China’s decision to halve tariffs on hundreds of U.S. imports worth around $75 billion bolstered hopes the global economy could avoid a major shock from the new virus outbreak in China and supported the demand for riskier assets. 

The announcement of a tariff cut added to optimism that stemmed from the Chinese central bank's injection of billions of dollars into the financial system earlier this week and its promises of additional stimulus to cushion the economic fallout from the virus, as well as yesterday’s coronavirus vaccine stories.

Market participants also received several important macro reports out of Australia, which were slightly disappointing. The Australian Bureau of Statistics (ABS) reported overnight that Australia Australia's retail sales fell by 0.5 percent m/m in December, following an upwardly revised 1.0 percent m/m gain in November. That missed economists' forecast for a 0.2 percent m/m drop. In a separate report, the ABS revealed that Australia's merchandise trade surplus stood at AUD5.22 billion in December down from the downwardly revised AUD5.51 billion surplus in November. That was shy of economists' forecast for a surplus of AUD5.95 billion.

Elsewhere, EUR traded little changed against most of its major rivals, restrained by weak German data. Destatis reported on Thursday Germany's factory orders decreased 2.1 percent m/m in December, following a revised 0.8 percent m/m decline in November. That was the biggest monthly decrease since February. Economists had expected 0.6 percent m/m gain.

FXStreet reports that according to Piotr Matys, an FX Strategist at Rabobank, outstanding U.S. economic data and investors’ demand for US assets are putting Central & Eastern Europe, Middle East, and Africa (CEEMEA) currencies under strain.

“The CEEMEA currencies are struggling to fully recover from their losses caused by the coronavirus as the US dollar is benefiting from a strong set of domestic data published so far this week.”

“Amongst its G10 peers, the US economy remains the most attractive and this is also reflected in persistent demand for the US assets.” 

“Since the trade war between the US and China started in Q2 2018, the EM stocks have underperformed the S&P 500 Index.”

“Prevailing demand for the US assets may limit scope for the CEEMEA currencies to appreciate against the dollar even if sentiment improves. It is worth noting that the Bloomberg Dollar Index has broken above the downside trendline from the October high. This is a constructive technical signal for the dollar which may extend its gains towards the November top at 1211.28.”

FXStreet reports that the loss of the 55-day ma level at 1.1092 has unchained more sales than expected for the analysts of Commerzbank.

“EUR/USD’s sell-off from the 55-day ma at 1.1092 has been more aggressive than we thought and attention has reverted to the 1.0981 29th November low – this together with the 1.0956/78.6% retracement should hold the downside.”

“Only above the 55-day ma will attention revert to the 200-day ma at 1.1124. Directly above here lies the 1.1171 55 week ma, the 1.1208 one year down channel and the 1.1240 recent high.”

FXStreet reports that analysts at TD Securities note Australia published data overnight regarding retail sales and trade balance which missed slightly market expectations. AUD/USD fell slightly on the release but then recovered to 0.6745.

“Dec retail sales dropped 0.5% m/m, more than the market forecast of -0.2% m/m, but this follows a very strong Nov, that was revised up from 0.9% m/m to 1% m/m.”

“Q4 Real Retail Sales rose 0.5% q/q, more than we (+0.2%) and the market (+0.3%) were anticipating and was the biggest jump since Q3 2018. The good news was the bounce was led by discretionary spending, a positive in our view.”

“Dec trade saw exports rise 1.4% m/m, but imports increased by a larger 2.4%. This saw the surplus in Dec drop to A$5.2b from A$5.5b in Nov.” 

“The message from NAB's Business Confidence survey for Q4 was that firms do not expect a material turnaround in activity in the near term.”

FXStreet reports that the current situation of the Aussie dollar after Lowe’s speech is seen by strategists at Westpac Institutional Bank as an opportunity to sell, given signals of falling commodity demand.

“The key point from Lowe’s speech on Wednesday was the RBA currently expects the impact to be temporary, if significant, and that growth will recover into end year on stimulus efforts.”

“Our views are much more cautious with revised growth forecast of just 1.9% (versus RBA at 2.75%) for the year ended 2020 versus 2.1% previously.” 

“The A$ should remain sensitive to the coming signs of falling commodity demand that we will inevitably see.”

“We took profit on our short AUD from 0.6950 on the dip through 0.6700 last week. While the A$ could push higher near term given guidance from Lowe that they are taking the ‘long view’ on the impact of bushfires and coronavirus, we doubt that we will see much strength above 0.68.”

FXStreet reports that Nordea’s analysts are predicting a big dive in Chinese GDP due to the effects of coronavirus. Meanwhile, the recent rate cut of the People’s Bank of China (PBoC) is supporting the yuan.

“The coronavirus will have a substantial negative effect on the Chinese economy. We estimate the production loss in the first quarter of 2020 to amount to 3-4% of the quarterly GDP, which would take the annual growth rate to around 3% compared to 6% in our baseline.”

“We were expecting slightly looser monetary policy already before the outbreak, but do not expect any major extra measures now, as financial leverage is still a concern.”

“The onshore yuan temporarily broke through the seven-to-the-USD mark on 3 February, following its offshore counterpart. Some signs of stabilisation and rebound are now showing, partly due to the underpinning by the central bank. The daily fixing rate has been kept on the strong side of seven to the dollar in the past few days, suggesting that the PBoC stands ready to support the currency.”

“The short-term direction of the CNY strongly depends on the further unfolding of the virus outbreak, and the measures the government takes to soften the blow.”

FXStreet reports that in the opinion of strategist at Westpac Institutional Bank, the Japanese currency is not being used as a safe-haven asset by investors at this moment as markets are not concerned about coronavirus either.

"The sharp recovery in USD/JPY despite the 'polynomial' rise in confirmed coronavirus cases suggests markets are not concerned."

"The outbreak and aggressive policies are set to contain coronavirus to have a major impact on growth in both China and the global economy. We are now forecasting 5.3% for China in 2020 and just 2.8% for global growth."

"From a risk-reward perspective, we will stick with the view that USD/JPY is a sell on strength, but would rather wait for a move above 110.50 before selling."

eFXdata reports that Citi discusses AUD outlook in light of this week's speech by RBA's Governor Lowe Speech. Citi likes AUD/NZD long around current levels targeting a move towards 1.0850.

"The key takeaway for markets are comments about the gradualness of the recovery, mainly in articulating that the expectation for progress towards full employment and hitting the inflation target will "remain quite slow" and that they are "moving in the right direction, although only very gradually."

For AUD though, it makes sense to be here given positioning and a stabilization in equities and he wouldn't be surprised to see it dribble higher," Citi notes.

"Long AUDNZD looks attractive, says CitiFX Strategy. Better Q4 data, a relatively hawkish shift by the RBA, unwinding of short positions in AUD by leveraged clients and attractive risk/reward create a supportive backdrop support this thesis," Citi adds.

FXStreet reports that in opinion of FX Strategists at UOB Group, a deeper retracement in NZD/USD seems to be losing traction.

24-hour view: "Our expectation for NZD to 'edge upwards within a higher trading range' did not materialize as it slipped from a high of 0.6504. Momentum indicators are mostly neutral and NZD is expected to trade sideways for today, likely between 0.6460 and 0.6500."

Next 1-3 weeks: "While we have held a negative view in NZD since early last week, we cautioned last Friday (31 Jan, spot at 0.6485) that NZD 'has to close below the solid 0.6460 support before further weakness to 0.6420 can be expected'. NZD subsequently edged slightly below 0.6460 but did not register a closing below this solid support. Despite the strong advance of +0.41% yesterday (04 Feb), our 'strong resistance' level at 0.6520 is still intact. That said, after the rapid bounce, the odds for further NZD weakness have diminished. Looking ahead, a breach of 0.6520 would indicate that the start of a correction phase in NZD."

Despite a breakout of the 110.00 mark is expected, USD/JPY should likely trade within a consolidative mood in the next weeks, suggested FX Strategists at UOB Group.

24-hour view: "Yesterday, we held the view that USD is likely to 'test 109.70 first before easing off'. The subsequent advance exceeded our expectation as USD soared to a high of 109.84 before ending the day on a firm note at 109.80. Upward momentum has improved considerably and from here, there is scope for USD to move above 110.00. For today, last month's peak near 110.30 is unlikely to come into the picture. Support is at 109.60 but only a breach of 109.40 would indicate the current upward pressure has eased."

Next 103 weeks: "Despite the relatively sharp USD decline to 108.30 last Friday, we indicated on Monday (03 Feb, spot at 108.45) that 'downward momentum has not improved by as much' and added, the "the prospect for a move to last month's low near 107.65 is not high". That said, the manner by which USD rocketed to a high of 109.54 yesterday came as a surprise (the +0.77% gain is the largest 1-day rise in 6 months). Downward pressure has dissipated but the near-term outlook is unclear. From here, USD is expected to trade sideways for a period, likely between the two major levels of 108.30 and 110.30."

FXStreet reports that according to analyst at ANZ Research, Australian retail sales data was slightly positive.

"Retail volumes grew 0.5% q/q in Q4 after no volume growth over the three previous quarters."

"Monthly sales in December went backwards (-0.5% m/m), but this was likely due to retail sales being pulled forward from December to Black Friday sales in November."

"The quarterly retail result is likely to be of comfort for the RBA after its decision to keep interest rates on hold in February."

"Structural barriers to discretionary spending remain (high levels of debt, elevated prices of essential services such as utilities and health and low interest income for savers), but December quarter growth represented a positive for real retail spending (from -0.3% y/y Sep to 0.4% y/y Dec). An encouraging sign, but still too early to interpret this as a turn in the trend of retail sales growth."

• Incoming information since the last Governing Council meeting in early December is in line with the Governing Council's baseline scenario of ongoing, but moderate, growth of the euro area economy.

• In particular, the weakness in the manufacturing sector remains a drag on euro area growth momentum.

• At the same time, ongoing, albeit decelerating, employment growth and increasing wages continue to support the resilience of the euro area economy.

• The risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, remain tilted to the downside, but have become less pronounced

• While inflation developments remain subdued overall, there are some signs of a moderate increase in underlying inflation in line with expectations.

• The unfolding monetary policy measures are underpinning favourable financing conditions for all sectors of the economy.

• In particular, easier borrowing conditions for firms and households are supporting consumer spending and business investment.

• This will sustain the euro area expansion, the build-up of domestic price pressures and, thus, the robust convergence of inflation to the Governing Council's medium-term aim.

Latest world economy analysis from National Institute of Economic and Social Research (NIESR) suggesting that global growth is set to remain at 10-year low in 2020:

• Global economic growth slowed again last year as increases in tariffs and uncertainty about future tariff impositions and their implications for production activity continued to have negative effects on industrial production, especially in the advanced economies, and global trade.

• With a weaker global economic outlook and continued low inflation, several central banks loosened monetary policy last year and these actions should provide some tailwinds to support global growth this year and into next.

• Despite the stalling activity in global industrial production and trade, the pace of service sector activity has remained robust.

• Our forecasts for global GDP growth this year of 3 per cent, effectively the same as last year, and 3¼ per cent next year are unchanged on three months ago. We expect only a very gradual pick-up in activity as the year progresses, with headwinds to growth and fragility remaining a feature of the global economy.

• After two years during which global economic growth has slowed from a cyclical peak in 2017 to its slowest rate since 2009, we expect that the growth slowdown will halt this year. We project global GDP growth of 3 per cent this year and 3¼ per cent next, with these forecasts unchanged from those of three months ago.

According to the report from IHS Markit, January data painted a brighter picture of the eurozone construction sector, with a quicker rise in new work intakes underpinning faster increases in activity, input buying and employment. Moreover, the mood among builders improved from December, with firms at their most upbeat since mid2019. Of the euro area's three largest economies, Germany was the strongest link as trends for construction output, home building, new orders, employment and input buying were all better than the trends in France and Italy.

The IHS Markit Eurozone Construction PMI rose from 51.3 in December to 51.9 in January, to signal the strongest rate of expansion in output since April 2019. Growth of residential and commercial work accelerated to nine- and four-month highs respectively, but civil engineering activity declined further. Eurozone builders recorded a fourth successive rise in new work, with the pace of growth the fastest in almost one year.

Eurozone builders were upbeat towards growth prospects, following a neutral outlook at the end of 2019. The degree of optimism was strong by historical standards and was at a six-month high.

• Broadly in line with our expectations, the euro area economy continues to grow, though still with modest momentum.

• The domestic economy remains relatively resilient.

• Yet, global factors weigh on euro area growth.

• To be sure, there are tentative signs of stabilisation, forward-looking indicators have become in slightly more optimistic

• While uncertainties surrounding the global economic environment remain elevated, those related to trade tensions between the United States and China are receding

• Other risks, however, are still lingering or - as for the uncertainty surrounding the impact of the coronavirus - are a renewed source of concern.

• The overall moderate growth performance is delaying the pass-through from wage increases to prices and inflation developments remain subdued

FXStreet reports that following the recent price action, FX Strategists at UOB Group suggested that USD/CNH is now seen moving into a side-line pattern.

24-hour view: "Our expectation for USD to 'trade sideways' was incorrect as it slumped and cracked a couple of strong support levels. While the rapid drop appears to be running ahead of itself, there is not sign of stabilization just yet. From here, barring a move above 7.0000 (minor resistance is at 6.9900), USD could move below the 6.9640 overnight low towards 6.9560."

Next 1-3 weeks: "We highlighted the 'slowing momentum and overbought conditions' two days ago (04 Feb, spot at 7.0060) and added, '7.0400 could be just out of reach'. The breach of the 'strong support' at 6.9680 yesterday indicates that the advance from 22 Jan (see annotations in the chart below) has run its course. The current movement is viewed as the early stages of a consolidation phase and USD is expected to trade sideways between 6. 9300 and 7.0100 for a period."

During today's Asian trading, the US dollar was almost unchanged against the euro and rose against the yen. A day earlier, the US national currency rose in price due to positive statistics.

In particular, the growth in the number of jobs in the United States in January was 291,000., which is a record increase in 4.5 years, according to industry organization ADP Employer. The average forecast of analysts assumed a much less significant increase - by 155 thousand.

The ISM index of business activity in the us services sector in January increased to 55.5 points from 54.9 points in the previous month. Analysts on average expected an increase to just 55 points. The current value of the indicator is the maximum for five months.

Meanwhile, the President of the European Central Bank (ECB), Christine Lagarde, called the "Wuhan coronavirus" a new factor of uncertainty in the global economy. "While the threat of a trade war between the US and China seems to be easing, a new layer of uncertainty is adding to the coronavirus," she said during a speech in Paris. "Therefore, we continue to closely monitor these risks and their impact on our main economic development scenario."

However, the President of the Federal reserve Bank of San Francisco, Mary Daly, said that she does not yet see any real impact of the virus on the US economy.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell by 0.03% compared to the previous day.

Based on provisional data, the Federal Statistical Office (Destatis) reports that price-adjusted new orders in manufacturing decreased by a seasonally and calendar adjusted 2.1% in December 2019 on the previous month. Economists had expected a 0.6% increase. For November 2019, revision of the preliminary outcome resulted in a decrease of 0.8% compared with October 2019 (provisional: -1.3%, because major orders from machinery and equipment that were reported later were not yet included).

Price-adjusted new orders excluding major orders in manufacturing decreased a seasonally and calendar adjusted 1.3% in December 2019 on the previous month.

Domestic orders increased by 1.4% and foreign orders fell by 4.5% in December 2019 on the previous month. New orders from the euro area were down 13.9%, and new orders from other countries increased by 2.1% compared with November 2019.

In December 2019 the manufacturers of intermediate goods saw new orders increase by 1.4% compared with November 2019. The manufacturers of capital goods saw a fall of 3.9% on the previous month. Regarding consumer goods, new orders fell 3.8%.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1151 (2736)

$1.1101 (4025)

$1.1055 (1387)

Price at time of writing this review: $1.0994

Support levels (open interest**, contracts):

$1.0949 (1319)

$1.0900 (677)

$1.0850 (408)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date February, 7 is 67941 contracts (according to data from February, 5) with the maximum number of contracts with strike price $1,1150 (4404);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3103 (1856)

$1.3060 (652)

$1.3027 (1339)

Price at time of writing this review: $1.2984

Support levels (open interest**, contracts):

$1.2941 (1359)

$1.2897 (1671)

$1.2848 (1934)

Comments:

- Overall open interest on the CALL options with the expiration date February, 7 is 25839 contracts, with the maximum number of contracts with strike price $1,3600 (3908);

- Overall open interest on the PUT options with the expiration date February, 7 is 22159 contracts, with the maximum number of contracts with strike price $1,3000 (2878);

- The ratio of PUT/CALL was 0.86 versus 0.87 from the previous trading day according to data from February, 5

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.