U.S. Consumer Confidence Remains High Despite Falling Consumption
After a disappointing holiday retail season, consumption data continues to disappoint investors as the primary driver of the U.S. economy falters. Core retail sales reported yesterday printed at -0.90% versus expectations of -0.40% with regular retail sales figures sliding to -0.80% versus the -0.50% drop expected. Other macro data also disappointed, with business inventories building at the slowest pace since collapse of Lehman Brothers, growing just 0.10%, below the forecast of 0.20%. Job losses in shale producing states accelerated last week after the continued weakness in oil prices saw initial jobless claims trend back above the 300,000 threshold, printing at 304,000 yesterday. The U.S. dollar slumped in response, with the euro and pound gaining broadly.
Across the Pacific, confidence in the Bank of Japan continues to wane following one of the worst bond auctions in recent memory. The poor bid-to-cover ratio on the latest 5-year auction and rising yields are signaling that the Bank of Japan might be losing control of one of the world’s biggest bond markets. Aside from the move in bonds, investors are net short Japanese stocks for the first time since Shinzo Abe was re-elected Prime Minister in 2012. The dramatic gains in JPY-denominated currency pairs in recent sessions were completely reversed with USDJPY currently trading lower on the week. The pair traded just over 120.50 before tumbling back below 119.00.
Eurozone data yesterday underperformed expectations with industrial production data missing estimates and printing firmly in contraction, falling -0.20% year over year versus expectations of 0.30% expansion. Although EURUSD bounced higher on weakness in American data, Spanish CPI data just announced points to the notion that deflation is spreading, with inflation falling -1.60% month over month and -1.3% annualized. While GDP releases this morning have pointed to moderate expansion in the Eurozone core with German GDP rising 0.70% quarter over quarter, French GDP remains anemic, gaining a modest 0.10% quarterly. The aggregate GDP figures due out from the Eurozone at 10:00 GMT will provide a better macroeconomic view of the whole monetary union and its outlook.
EURCHF Cup and Handle Trading Opportunity
After rebounding following the sell-off in the wake of the Swiss National Bank decision, the new softer EURCHF peg instituted by the SNB seems to be more effective. The SNB is allegedly targeting a EURCHF range of 1.05-1.10 to keep the Franc competitive and maintain the modest export economy. The cup and handle technical pattern setting up in the EURCHF pair has a bullish bias that points to further upside in the coming sessions. The 500 pip target range of the SNB could be thwarted if no resolution is reached with Greece’s creditors, theoretically sparking a selloff in the EURCHF pair. In this instance, a fall below support 1.0578 should be treated as a breakdown in the pattern and possible reversal in the pair.