The euro and the pound consolidate, but remain weak

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US stocks were again hammered overnight and selling continues in Asia. But major currency pairs and crosses are trading in a tight range, digesting recent moves. The euro and the pound recover ground while the Aussie cuts its gains. Gold is consolidating below 2000 but the pullback is shallow. WTI Crude Oil holds firm in consolidation above 120. There is little to suggest an overall change in direction in the markets so far and more downside is still in favor of the Euro and the delivered.

Technically, a major target for us is for USD/JPY to break out of the recent range of 114.40/116.33. A break up is slightly in favor as the pair is continuously supported by the 55-day EMA. However, once the persistent support has been firmly removed, the selling could be intense and we could see USD/JPY dip towards the support at 110.95 quite quickly.

In Asia, at the time of writing, the Nikkei is down -1.25%. Hong Kong’s HSI index is down -0.45%. China Shanghai SSE is down -1.99%. Singapore Strait Times is down -0.75%. Japan’s 10-year JGB yield is up from 0.0164 to 0.163. Overnight, the DOW fell -2.37%. The S&P 500 fell -2.95%. The NASDAQ fell -3.62%. The 10-year yield rose 0.027 to 1.751.

Australia’s NAB business confidence jumped to 13, getting back on track

Australian NAB business confidence rose from 4 to 13 in February. Trade conditions increased from 2 to 9. Looking at some details, trade conditions increased from 8 to 10. Profitability condition increased from 2 to 5. Employment condition increased from -1 to 8.

“Overall, the February survey shows the economy quickly getting back on track as the Omicron wave recedes,” said Alan Oster, chief economist at NAB Group. “The outlook is quite strong, with supply disruptions and cost pressures now the main challenge facing businesses.”

Bank loans in Japan rose 0.4% year-on-year in February, the weakest since 2012

Bank lending in Japan rose 0.4% y/y in February, below expectations of 0.6% y/y. This is the slowest rate since May 2012. Loans from major banks fell -1.3% year-on-year, the largest drop since August 2021. Loans from regional banks increased by 1.7% in year-over-year, the smallest increase in more than a decade.

“We need to keep an eye on how developments in Ukraine could affect corporate financing through rising crude oil prices,” a BOJ official said in a briefing.

Also released, labor income rose 0.9% y/y in January, above expectations of 0.2% y/y. The current account surplus narrowed to JPY 0.19T in January, below expectations of JPY 0.33T.

Look forward

Germany’s industrial production, Italy’s retail sales and Eurozone GDP will be released during the European session. Later today, both the United States and Canada will release their trade balance.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 150.68; (P) 151.46; (R1) 151.87; Continued…

GBP/JPY’s intraday bias remains bearish for now. The decline from 158.04 which is seen as the third leg of the consolidation pattern from 158.19 should then target the support at 148.94. On the upside, a break of the 155.20 resistance is needed to signal the completion of the decline. Otherwise, the outlook will be slightly bearish in the event of a rally.

Overall, price action from 158.19 is seen turning into a consolidation pattern towards an uptrend from 123.94 (2020 low). The decline should be contained by a 38.2% retracement from 123.94 to 158.19 to 145.10 to bring a bounce. The firm break of 158.19 will resume the uptrend towards the long term Fibonacci level at 167.93. However, a sustained breakout of 145.10 will increase the chances of a trend reversal and target a 61.8% retracement at 137.02.

Economic Indicators Update

GMT Ccy Events Real Forecast Previous amended
11:30 p.m. JPY Cash earnings from labor Y / Y Jan 0.90% 0.20% -0.20% -0.40%
23:50 JPY Bank loans Y/Y Feb 0.40% 0.60% 0.60% 0.50%
23:50 JPY Current Account (JPY) January 0.19T 0.33T 0.79T 0.81T
00:01 GBP BRC Like-For-Like Retail Sales Y/Y Feb 2.70% 4.70% 8.10%
00:30 USD NAB Business Trust February 13 3 4
00:30 USD NAB Business Terms February 9 3
05:00 JPY Leading Economic Index Jan P 104.5 104.8
05:00 JPY Survey of eco-observers: current February 38.1 37.9
07:00 USD Germany Industrial production M/M Jan 0.50% -0.30%
09:00 USD Italy Retail sales M/M Jan 1.10% 0.90%
10:00 USD Eurozone GDP Q/Q Q4 F 0.30% 0.30%
10:00 USD Change in employment in the euro zone Q/Q Q4 F 0.50% 0.50%
11:00 USD NFIB Business Optimism Index (CAD) February 97.5 97.1
13:30 BODY International Merchandise Trade Jan -87.5B -0.1B
13:30 USD Trade Balance (USD) January -87.5B -80.7B
15:00 USD Wholesale inventories Jan 0.80% 0.80%
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