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Fri, 20th January 2017

Anirudh Sethi Report

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Posts Authored by: “Anirudh Sethi”

USDJPY is trading at new highs

Tests trend line resistance area

The USDJPY is trading at new session highs and in the process is testing a downward sloping trend line and a horizontal line of swing highs and low on the hourly chart. We are trying to move above that area now (above 115.195)
Be aware that if there is more momentum higher on the break, the 50% at 115.58 is the next target, followed by the 115.85 area. At that level is the 100 and 200 bar MA on the 4-hour chart both come in at that level.  That combination should stall a rally.
US bond yields – unchanged at the start of the NY session – area higher. The 10 year yield is up 4 basis points. The US housing data was ok and the initial claims and Philly Fed index were also favorable.  So the dollar bulls are more comfortable again.

Draghi refuses to comment on Trump EU claims; tells Germans to ‘be patient’

Mario Draghi has refused to respond to Donald Trump’s claims on the EU’s disintegration, saying he was unwilling to talk about the president-elect’s stance that keeping the federalist project together will be “harder” than imagined.

At his latest press conference in Frankfurt, Mr Draghi said he would only respond to “policies rather than just statements”, ahead of Mr Trump’s inauguration as president tomorrow.

The Italian was however more vocal on German criticism of the ECB’s record low interest rates, telling savers in Europe’s largest economy to “be patient” in the wait for higher interest rates.

“Real rates will go up” as the recovery regains momentum he said.

Mr Draghi’s broadly dovish tone on inflation has seen the euro weaken to its lowest in 10 days this afternoon. The ECB president said much of the recent spike in prices was down to higher energy prices with wage growth and other evidence of higher economic activity still low.

He also refused to make any comment on the looming bailout of one of Italy’s biggest banks and the implementation of new EU rules which will impose losses on junior bondholders.

US jobless claims fall to 43-year low

The number of Americans applying for first-time unemployment benefits plunged to a 43- year low last week, reinforcing the picture painted by recent economic indicators of continued strength in the US labor market.

US jobless claims fell by 15,000 to 234,000 in the week ending January 14, according to the Labour Department — confounding market expectations for a rise to 252,000.

The figures would represent the lowest level of weekly claims since July 1973.

Draghi: December ECB decisions have succeeded

  • ECB will look through HGICP if it deems it transient
  • Underlying inflation pressure are subdued

There’s the “we’ll ignore inflation” comment. EURUSD slips to 1.0622

  • Borrowing costs have benefitted from ECB decisions
  • ECB will continue to preserve a very substantial degree of accommodation
  • Will use all instruments in mandate if necessary
  • Data points to somewhat stronger growth in Q4
  • Global recovery somewhat stronger
  • EZ growth dampened by sluggish structural reforms
  • Outlook risks tilted to the downside
  • Downside risks relate to global factors
  • There are no convincing signs of an upward trend in inflation
  • Underlying inflation expected to rise more gradually over medium-term

The constant remarks on brushing the recent rise in inflation is hurting the euro.

  • Structural reforms need to be stepped up substantially
  • Reforms are needed in all EZ countries
  • Fiscal policies should also support the recovery but stay within rules

 

Will ‘Dull Draghi’ Talk Up Downside Risks? – ECB Press Conference Live Feed

With Yellen hell-bent on tightening into Trump’s fiscal stimulus, and inflationary impulses popping up all around the world, ECB president Mario Draghi better note some serious downside looming (after leaving rates/taper unchanged) that opens the door to his un-tapering or the stagflationary pressures building everywhere willcome back to bite his precious asset prices.

As we noted earlier, with the market not expecting any changes from the ECB this morning, so far that is precisely what it got, when moments ago the ECB announced that it kept all of its rates unchanged as expected, keeping the rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.40%, respectively.

In additional language relating to non-standard measures, the ECB also said that “it will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017 and that, from April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary” and “in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

It also said that “the net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP” and cautioned that “if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.” 

In other words, it may move QE up or down, depending on what happens with inflation, in line with the ECB’s December announcement.

ECB leaves main interest rate unchanged at 0.0%

Details of the ECB monetary policy meeting 19 January 2017

  • Prior 0.0%
  • Deposit rate -0.40% vs -0.40% prior
  • Marginal lending rate 0.25% vs 0.25% prior
  • QE purchases €80bn per month

There’s nothing much in the accompanying statement.

PRESS RELEASE

Monetary policy decisions

19 January 2017

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that it will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017 and that, from April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

The euro did it’s usual 20 pip flip flop in the seconds into and over the release but is back around 1.0660.