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FXStreet reports that strategists at Danske Bank analyze the situation of the American economy and which steps can take Fed’s Chair Powell in the coming months. Their view is that the Fed will cut rates in the first half of this year.  

"In our view, Fed chair Powell has positioned himself as one of the more dovish members of the centrist camp, suggesting that a rate hike is not in the cards anytime soon and that risks are skewed towards more easing."

"It is fair that investors continue to price in cuts. Investors have priced in around 1.4 cuts this year and nearly a 50% probability of a rate cut by June. At the beginning of the year less than one cut was priced in."

"We have not changed our macro outlook for the US significantly on the back of the virus outbreak. We believe private consumption will remain the main growth driver but that renewed uncertainty is likely to postpone a potential rebound in investments by a few months, depending on how long the uncertainty drags out." 

"For now, we stick to our view that the Fed will cut rates again during the first half of 2020, probably in April, although it is not a high conviction call at this point. We disagree with the Fed when it says that monetary policy is accommodative, as the real Fed funds rate is at the same levels as real yields."

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories climbed by 7.459 million barrels in the week ended February 7. Economists had forecast an advance of 2.987 million barrels.

At the same time, gasoline stocks edged down by 0.098 million barrels, while analysts had expected a gain of 0546 million barrels. Distillate stocks declined by 2.013 million barrels, while analysts had forecast a decrease of 0.557 million barrels.

Meanwhile, oil production in the U.S. rose by 100,000 barrels a day to 13.000 million barrels a day.

U.S. crude oil imports averaged 7.0 million barrels per day last week, up by 363,000 barrels per day from the previous week.

• The biggest issue of the federal budget is healthcare spending
• U.S. spending on healthcare very high for returns
• Likely to need QE, forward guidance in a downturn
• If needed, will use tools 'aggressively'
• He would be concerned about the level of U.S. debt
• Need federal debt growth to be slower than GDP growth
• Housing sector during better but affordability and issue
• Uncertainty around trade has declined
• Less uncertainty may mean upside for investment

• U.S. economy has faced headwind after headwind
• But it is in a good place to weather storms right now
• The average inflation targeting over a long period makes sense, not talking about much above 2%
  
• Businesses more optimistic than the end of last year that economy in a better place

FXStreet reports that according to strategists at TD Securities OPEC’s doubts to add production curbs alongside a possible Libyan oil production resumption might bring additional losses to crude oil.

“Hopes that we have reached 'peak coronavirus' fear is catalyzing a round of risk-on trading, which is helping crude find a floor.” 

“In OPEC's view, the disruption could only amount to some 230k bpd annualized of global oil demand. Meanwhile, OPEC+ is hesitating on adding to existing production curbs given the limited disruption in Russia's domestic energy exports, with energy-time spreads sending strong signals of oversupply.” 

“WTI and Brent Dec-Dec spreads are flirting with contango as the market prices in the oversupply narrative. The prospect of no OPEC+ action until the March meeting, along with a possible resumption of nearly 1m bpd of Libyan oil production should peace talks prove successful and refinery maintenance season just getting underway all suggest that crude markets could see some additional pain.”

FXStreet reports that according to strategists at TD Securities gold is sitting at $1565.75 while the context for the yellow metal is a market where traders are holding long, but not large positions.

“Gold is a crowded trade. The bull market narrative is widely acknowledged, which translates to an above-average number of traders holding a long position, although the average trader's position size is not excessive, suggesting that greed is not widespread.” 

“The risk to gold bugs is a change in narrative that would prompt a decline in the number of traders long. A reversal of recent safe-haven flows driven by fears that the Wuhan coronavirus could contaminate global reflation appears to be an obvious candidate for a narrative-driven reversal."

U.S. stock-index futures rose on Wednesday, as investors' concerns about the coronavirus outbreak ebbed and risk appetite improved.

Global Stocks:

Bert Colijn, a senior Eurozone economist at ING, notes that еру Eurozone industry ended the year on a miserable note as production fell by 2.1% in December. 

"The contraction in production, which has now completed its second full year, has left production 6.9% lower than it was at its December 2017 peak. November production had shown a slight uptick, but December indicates that it is too soon to call an end to the eurozone industrial recession."

"Declines were found across the monetary union as Germany, France, Italy and Spain all experienced a contraction in production that was larger than 2%."

"Despite declining production, optimism has been on the rise among manufacturers. This is mainly because of the phase one trade deal between China and the US and a cooling down of trade tensions between the US and EU."

"But uncertainty about the impact of the coronavirus on the global supply chain has put a spanner in the works. While it is very difficult to estimate the impact of the virus on European production, it is likely to delay and subdue the recovery of industrial production somewhat more."

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

GBP appreciated against other major currencies in the European session on Wednesday as concerns about the coronavirus outbreak eased and investors' risk appetite improved.

The latest reports from China revealed the growth pace of new coronavirus cases in China has slowed to the lowest since the end of January. In addition, China’s senior medical adviser said the outbreak might be over by April. The Chinese officials also continued to make efforts to improve sentiment, announcing policy measures that would presumably boost growth. China's Communist Party's standing committee promised to continue to roll out tax-cut measures to alleviate pressure on firms and to enhance the strength of the macro policy adjustment.

EUR traded slightly lower against most major rivals, weighed down by disappointing Eurozone's industrial production data for December. Eurostat reported that industrial production in Eurozone fell 2.1 percent m/m in December after being unchanged m/m in November. Economists had forecast a 1.6 percent m/m decline. That marked the sharpest monthly contraction since February 2016. In y/y terms, industrial production tumbled 4.1 percent, following a revised 1.7 percent decrease in November and missing economist forecast for a 2.3 percent drop. The latest reading matched the December 2018 decline, which was the biggest since November 2009.

FXStreet reports that economists at Rabobank note the Reserve Bank of New Zealand (RBNZ) took a steady interest rate decision overnight but it was the optimistic tone of the accompanying statement which took the market by surprise.

“The December unemployment rate unexpectedly dropped to 4%, Q4 headline CPI at 1.9% y/y was a little faster than expected and house price inflation picked up into the end of last year. The better data can be linked with the 75 bps in rate cuts announced by the RBNZ last year in addition to the government’s increase in fiscal spending.”   

“The RBNZ indicated that any coronavirus impact would likely be short-lived. The result was a sharp drop in expectations regarding further interest rate cuts from the RBNZ and a spike higher in the value of the NZD/USD. In our view, however, the NZD is not out of the woods yet.”

“The RBNZ forecasts that economic growth will accelerate over the second half of 2020 on the back of both monetary and fiscal stimulus.”

“The RBNZ policy look set to remain on hold. However, if evidence mounts that the impact from coronavirus is set to be significant, the RBNZ will likely be forced to react. We see risk of AUD/NZD heading lower towards the psychologically important 1.03 level.”

Barrick (GOLD) reported Q4 FY 2019 earnings of $0.17 per share (versus $0.06 per share in Q4 FY 2018), beating analysts' consensus estimate of $0.14 per share.

The company's quarterly revenues amounted to $2.883 bln (+51.4% y/y), beating analysts' consensus estimate of $2.831 bln.

GOLD rose to $18.60 (+0.87%) in pre-market trading.

Lyft (LYFT) reported Q4 FY 2019 GAAP loss of $1.19 per share, better than analysts' consensus estimate of -$1.39 per share.

The company's quarterly revenues amounted to $1.017 bln (+51.9% y/y), beating analysts' consensus estimate of $0.984 bln.

LYFT fell to $51.11 (-5.25%) in pre-market trading.

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. rose 1.1 percent in the week ended February 7, following a 5.0 percent surge in the previous week.

According to the report, refinance applications jumped 5.0 percent, while applications to purchase a home fell 5.8 percent.

Meanwhile, the average fixed 30-year mortgage rate edged up to 3.72 percent from 3.71 percent.

"The mortgage market continues to be active in early 2020, as applications increased for the third straight week. Rates also rose, but still remained close to their lowest levels since October 2016," noted Joel Kan, an MBA economist. "The refinance index climbed to its highest level since June 2013, and refinance loan sizes also increased as a result of an active jumbo lending market."

FXStreet reports that in opinion of FX Strategists at UOB Group, USD/CNH faces the likeliness of extra consolidation in the near-term.

24-hour view: “We highlighted yesterday that USD ‘could ease lower towards 6.9680’. The subsequent weakness exceeded our expectation as USD dropped to a low of 6.9630. Despite the relatively rapid decline, downward momentum has not improved by much. That said, further weakness is not ruled but for today, a breach of 6.9500 would come as a surprise. Resistance is at 6.9800 followed by 7.0000.”

Next 1-3 weeks: “USD traded in a relatively choppy manner over the past few days as it gave up most of its gains from late last week over the past couple of days. For now, we continue to hold the same form last Thursday (06 Feb, spot at 6.9780) wherein USD is expected to trade within a broad 6.9500/7.0230 range.”

• Will continue to roll out tax cut measures to alleviate pressure on firms
• Will actively boost domestic demand
• Will enhance the strength of macro policy adjustment
• Says fiscal policy to take more active role; will increase capital investments
• Will implement differentiated virus-curbing measures

• We expect gradual, visible move up in inflation
• Coronavirus can have a pretty serious short-term hit; impact might be relatively minor over a year's time
• There will be red lines on banking equivalence after Brexit

FXStreet reports that the Riksbank kepts its policy rate on hold at 0.00%, as had been unanimously expected. There was no change in the repo rate forecasts, and little market reaction to what was a very uneventful meeting, strategist's at TD Securities Jacqui Douglas reports. USD/SEK is losing 0.11% this morning.

"The Riksbank maintains its view that the policy rate will remain unchanged at 0.00% up until the tail-end of its forecast horizon."

"The macro forecasts saw GDP growth revised up a tenth for 2020 (to 1.3%) and 2021 (to 1.8%), while CPIF was revised 0.4ppts lower for 2020 on lower energy prices (to 1.3%) but unchanged for 2021 at 1.7%."

"The Riksbank is comfortably on hold for the foreseeable future. While we believe that the macro data justifies a rate cut, the Riksbank will be loathed to push rates back into negative territory short of an outright recession at the very least."

FXStreet reports that GBP/USD is below 1.30 which is the mark the cable will be trading around in the next year, according to strategists at Westpac International Bank.

"In the lead into Brexit at the end of January, we anticipated Sterling strength. However, the honeymoon has proven much shorter than anticipated. Whereas we had forecast GBP/USD to hold around 1.32/33 through the first half of 2020, it is instead already down below USD1.30."

"On our current forecasts, the BOE rate cut in March will quickly be overrun by the three cuts from the FOMC, altering the monetary policy balance. That said, the US will remain in the dominant position with respect to GDP growth and presumably trade relations. We, therefore, look for GBP/USD to essentially mark time through 2020 and 2021 around USD1.30."

According to the report from Eurostat, in December 2019 compared with November 2019, seasonally adjusted industrial production fell by 2.1% in the euro area (EA19) and by 2.0% in the EU27. Economists had expected a 1.6% decrease in the euro area. In November 2019, industrial production remained stable in the euro area and in the EU27.

In December 2019 compared with December 2018, industrial production decreased by 4.1% in the euro area and by 3.9% in the EU27. Economists had expected a 2.3% decrease in the euro area.

The average industrial production for the year 2019, compared with 2018, fell by 1.7% in the euro area and by 1.1% in the EU27

In the euro area in December 2019, compared with November 2019, production of capital goods fell by 4.0%, intermediate goods by 1.7%, non-durable consumer goods by 1.3%, durable consumer goods by 1.1% and energy by 0.5%. In the EU27, production of capital goods fell by 3.5%, intermediate goods by 1.6%, durable consumer goods by 1.4%, non-durable consumer goods by 1.2% and energy by 0.7%.

In the euro area in December 2019, compared with December 2018, production of capital goods fell by 6.7%, intermediate goods by 5.5%, energy by 2.3% and durable consumer goods by 1.4%, while production of nondurable consumer goods rose by 1.3%. In the EU27, production of capital goods fell by 6.0%, intermediate goods by 4.9%, energy by 3.0% and durable consumer goods by 0.9%, while production of non-durable consumer goods rose by 0.9%.

FXStreet reports that analysts at Westpac Institutional Bank are predicting a measured and steady recovery for the European currency in the next months.

"The move higher for Euro will be measured and steady, with EUR/USD unchanged at its current level until March, and then only rising a cent per quarter to USD1.12 at year's end. This trend is set to continue in 2021, through to USD1.15."

"If Euro were to gap higher and/or GDP growth disappoint our 1.0%/1.2% expectation for 2020/2021, then the ECB may look to jawbone the currency."

"Although we are forecasting a 10bp cut to the deposit rate mid-year in response to the FOMC's first cut, this should only be regarded as a token gesture. There is no economic or financial market justification to take the deposit rate towards -1.0%, or any belief that it would be effective."

FXStreet reports that the Japanese currency has not shown off its safe-haven status this time probably due to the proximity of the coronavirus to Japan. Analysts at Westpac Institutional Bank predict the Yen will recover its ground in the next weeks.

"We believe uncertainty will persist, supporting the US dollar. However, there is likely to be an offsetting shift in relative growth dynamics and a consequent turn in US monetary policy. This will leave the US dollar lower at the end of the year than its starting level."

"The Yen typically sees a strong safe-haven bid during global risk episodes; but in this instance, the currency has lost ground against the US dollar - USD/JPY up 1.0% since December to 109.83. Ahead, Japan's strong health system and already-announced fiscal stimulus should limit the negative shock that their economy will experience. As this becomes apparent in the data in coming months, sentiment surrounding the Yen should turn once again.."

"The Yen will reverse its move since December (to around JPY109, or a little below), but the factor that will then extend this move down to the JPY105 level we expect in the second half of 2020 is a shift in the US/Japan monetary policy differential."

According to the report from Federal Statistical Office (Destatis), the index of real earnings in Germany rose by an average of 1.2% in 2019 compared with a year earlier. Based on provisional results of the quarterly survey of earnings, Destatis also reports that nominal earnings in 2019 increased by 2.6% year on year.. Consumer prices rose by 1.4% in the same period.

The trend of recent years, in which gross earnings of employees rose more than consumer prices, continued in 2019: measured by the real wage index, employee earnings have also increased by 1.2% on average every year since 2010. Nominal earnings of full-time, part - time and marginal employees increased by an average of just under 2.6% and consumer prices by just over 1.3% per year.

These data are preliminary results on the nominal (not price adjusted) and real (price-adjusted) growth of gross earnings in Germany in the year 2019. Detailed and final data for the 4. Quarter of 2019 and 2019 are expected to be published at the end of March 2020.

FXStreet reports that the United States will release inflation data on 13 Thursday at 13:30 GMT. Economists at ANZ share the forecast of the oceanic bank as the US dollar is showing strength since weeks ago.

"We expect core CPI to increase by 0.2% m/m (or 2.4% y/y) in January (market: 0.2%, 2.4%) and to increase around trend of 0.2% m/m in the next few months."

"We also expect headline CPI to rise by 0.1% m/m (market 0.2%, 2.4%). The risk is to the downside, given a recent drop in energy prices, therefore, headline inflation is likely to fall in the near term."

"We see little prospect of a rate hike for some time. We believe the Fed will welcome inflation rising above target for a reasonable period, and that it would likely require a lengthy and decent overshoot of the 2% inflation target before contemplating a hike."

CNBC reports that the ongoing coronavirus outbreak is speeding up the so-called "decoupling" between the U.S. and China more than their trade war did, according to an analyst from the Milken Institute.

"We talked about China and the U.S. decoupling. The coronavirus more than the trade war has sped some of that decoupling as countries, as businesses think about their supply chain for the long run," said Curtis Chin, an Asia fellow at the Milken Institute, calling it an "increased disengagement" of both economies.

"It can't all be in China, we've seen some of the consequences of over reliance on just one key market," he told CNBC at the Milken Institute's Middle East and Africa Summit in Abu Dhabi.

Talk of the risk of the world's two major powers "decoupling" surfaced as their trade battle, which began in 2018, heated up - leading to billions of dollars of tariffs imposed on each other's goods. Sticky issues also included the U.S. accusing China of intellectual property theft and forced technology transfer.

Chin said: "The reality is that the US and Chinese economies, from supply chains to investment and trade flows, will be intertwined for years to come. The coronavirus crisis, however, has underscored to the United States and all of China's trading and investment partners the value of diversification away from China."

FXStreet reports that the probable move to sub-1.2850 levels appears to have lost some momentum in Cable, noted FX Strategists at UOB Group.

24-hour view: "GBP traded between 1.2895 and 1.2968 yesterday, relatively close to our expected sideway-trading range of 1.2885/1.2965. The daily closing in NY is on the firm side (1.2957, +0.36%) and from here, GBP could edge upwards and test the strong resistance at 1.2980 (next resistance is at 1.3000). For today, a clear break of 1.2980 appears unlikely. Support is at 1.2930 but only a move below 1.2910 would indicate the current mild upward pressure has eased."

Next 1-3 weeks: "After breaking the 1.2900 support last Friday (07 Feb), GBP has not been able to make much headway on the downside. The relatively strong bounce of +0.36% (NY close of 1.2957) yesterday has resulted in a rapid loss in downward momentum. In other words, the risk of a break of 1.2850 has diminished. However, only a move above 1.2980 (no change in 'strong resistance' level) would indicate the current weakness has stabilized. Meanwhile, in order to rejuvenate the flagging momentum, GBP has to move and stay below 1.2910 within these few days or a break of 1.2980 would not be surprising."

eFXdata reports that Credit Suisse discusses USD/JPY technical outlook and adopts a neutral bias.

"USDJPY is consolidating in line with our bias for further churning within the broad range with the next resistance thereafter seen at 110.03 initially, before the 110.29 high, which we believe is likely to prove a tough barrier.

Above here though would reassert the upmove, with the next resistances seen at 110.68/71, the 78.6% retracement of the 2019 fall, 61.8% retracement of the entire 2018/19 fall and a corrective price high," CS notes.

"We believe this zone is likely to prove a tough barrier if reached. As above, short term support stays at 109.30/27, the recent intraday breakout point, which now ideally holds to keep the risks leaning modestly higher within the range," CS adds.

The US dollar strengthened slightly against the euro, the yen fell in price due to some weakening of demand for safe haven assets on signals of a slowdown in the spread of the Chinese coronavirus.

Powell, who presented a semiannual monetary policy report to the house financial services Committee on Tuesday, said the spread of the coronavirus would have implications for the Chinese economy in the first quarter of 2020 and possibly for the American economy. According to him, it is too early to draw conclusions about whether the epidemic will lead to sustainable and significant changes in the US economy. "We can't assess the economic consequences right now, "he said, adding that "China has taken very serious measures to combat the coronavirus."

The Fed's report, published last Friday, noted that the decline in China as a result of the coronavirus epidemic could spread to the States and global markets "by reducing risk appetite, strengthening the US dollar, as well as reducing trade volumes and commodity prices."

In China, as of 00:00 hours local time on Wednesday, the number of cases of pneumonia caused by the coronavirus was 44,653 thousand people, the fatal outcome was recorded in 1,113 thousand cases, the state health Committee of China reported.

• RBNZ forecasts for the OCR show they do not expect to cut this year at all

• Sees official cash rate at 1.01% in June 2020 (previous 0.9%)

• Sees official cash rate at 1.03% in March 2021 (previous 0.9%)

• Sees official cash rate at 1.1% in June 2021 (previous 0.94%)

• Overall impact of coronavirus on New Zealand will be of a short duration

• Risks that impact will be larger and more persistent

• Low rates necessary to keep employment and inflation around target

• economic growth expected to accelerate over second half of 2020

• Employment is at or slightly above its max sustainable level

• Inflation close to 2% mid point

• Committee agreed low interest rates had helped to get employment and inflation to around their target levels

• Committee discussed financial stability risks from ongoing low rates

• Members noted the bank's assessment that marginal changes to the ocr would not materially affect these risks at this time

• Members discussed the better mix of policy stimulus in the projections, given additional fiscal stimulus is reducing the burden on monetary policy

• Committee discussed alternative cash rate settings and the various trade-offs involved

EUR/USD

Resistance levels (open interest**, contracts)

$1.1027 (2684)

$1.0996 (993)

$1.0975 (225)

Price at time of writing this review: $1.0908

Support levels (open interest**, contracts):

$1.0870 (3111)

$1.0833 (1969)

$1.0791 (2111)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 6 is 95534 contracts (according to data from February, 11) with the maximum number of contracts with strike price $1,1200 (6307);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3059 (1878)

$1.3033 (787)

$1.3014 (368)

Price at time of writing this review: $1.2952

Support levels (open interest**, contracts):

$1.2916 (1181)

$1.2892 (2041)

$1.2861 (2552)

Comments:

- Overall open interest on the CALL options with the expiration date March, 6 is 24627 contracts, with the maximum number of contracts with strike price $1,3050 (3441);

- Overall open interest on the PUT options with the expiration date March, 6 is 25810 contracts, with the maximum number of contracts with strike price $1,2800 (3190);

- The ratio of PUT/CALL was 1.05 versus 1.05 from the previous trading day according to data from February, 11

* - 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.