THERESA MAY BRUSSELS TRIP MEETS ROADBLOCKS
The euro was unchanged in overnight trading as traders continued to assess the monetary policy statement by the European Central Bank (ECB). Yesterday’s statement said that the bank would stop the €2.5 trillion quantitative easing program as scheduled. The bank also warned of potential risks as the EU economy cools and repeated plans to adjust interest rates ‘through summer’. Investors are worried that the bank’s tightening will come at a time when growth and inflation are projected to slow down.
The Japanese yen was little moved in the Asian session even as the country released mixed economic data. The Tankan large manufacturers index rose to 19, which was higher than the estimated 17. Similarly, the large non-manufacturing index rose to 24, which was better than the consensus estimate of 21. The manufacturing PMI for December increased to 52.4. On the negative side, the Tankan all small industry capex contracted by a bigger margin of minus 3.7%. Meanwhile, in China, industrial production rose by 5.4%, lower than the estimated 5.9%, while retail sales rose by an annualized rate of 8.1%. Traders were expecting a growth of 8.8%.
Sterling declined slightly as Theresa May’s trip to Brussels started in the red. This is after European leaders accused her of coming to the negotiating table without any viable proposals. While she received a warm welcome, she alienated many of the leaders during her hour-long presentation. The chief EU negotiator, Michael Barnier accused May of not seeking reassurances but reviving old ideas that were rejected during the negotiations. Jean-Claude Juncker said that the Prime Minister needed to say what she wanted instead of asking them what they wanted. All this puts May in a precarious position as negotiations continue to be plagued with doubt.
After yesterday’s extreme movements, the EUR/USD pair calmed down and remained unmoved at the 1.1360 level. The current price is along the 50-day and 25-day EMA levels as the RSI remain at the neutral levels on the 30-minute chart. Therefore, at these prices, there is a likelihood that the pair could breakout in either direction.
The GBP/USD pair ticked downwards as Theresa May found roadblocks in her Brussels trip. It reached a low of 1.2620. On the hourly chart, the price is along the 50-day EMA and slightly lower than the 25-day EMA. It has also formed a symmetrical triangular pattern, which is an indication that a breakout in either direction is likely. However, the movements will be most likely driven by the news coming from Brussels and London.
On Monday, the USD/JPY pair started moving up from a low of 112.22 and reached a high of 113.70 yesterday. Earlier today, the pair dropped after mixed data from Japan. It reached a low of 113.40. On the hourly chart below, the current price is along the 50-day and 25-day EMA while the momentum indicator is moving down. With no major economic data expected today, the pair will likely continue moving down.