Posted on: 05 February 2016, by: Pepperstone Support, category: Market Review
Another day of soft US data, lower US yields and USD pressure.
Business output edged up by only 0.1%, which was much lower than the healthy 3.3% gain in hours worked .
This combination drove down productivity to -3.0%. Productivity was up only 0.3%YoY.
The lack of production had the mirror image effect on unit labor costs. The strong hours worked figure, coupled with a modest rise in compensation per hour, far outweighed the output figure. This resulted in a 4.5% rise in unit labor costs, for 2.8%YoY rise.
Factory orders down by -2.9% in December versus -2.8% expected; negative revision totaled -0.5%.
Durable goods orders down -5.0% versus -4.5% expected. Ex-transportation, -1.0% for final December print versus 1.2% prior.
Meanwhile, oil remained highly volatile on the back of the now constant drumming of Opec noise. WTI peaked near 33.50 and closed near lows, 31.70/50.
USDCHF is now below 1.000. EURCHF now 1.1110/20.
USDJPY now tests 116.50, with the 116.00/115.85 being key for sentiment from here.
EURUSD rose to 1.1240. Technically speaking, we’ve broken out of a pretty clean bullish flag formation. Pattern targets suggest 1.1490 as the full term objective, but we note 1.1370 and 1.1260 as areas that need to be cleared first before getting on board for a larger move. Also, NFP is tomorrow. We see no need to get excited about the Euro when the move can be undone before London goes home for the weekend.
The Bank of England meeting, Inflation Report and press conference passed with GBP finding no direction. In fact, GBP was the only G10 current to slip against the USD. GBPUSD tests 1.4590.
Officials held rates but markets initially didn’t take well to McCafferty’s decision to switch his call. This time, it was a unanimous policy decision.
The MPC again cut their growth and inflation forecasts, and now forecast CPI inflation in Q4-2016 to be 0.9% YoY, versus 1.3% YoY in the Nov-15 IR, extending the downgrades since early-2013. The MPC also cut their 2016 growth forecast (to 2.2% from 2.5% in the Nov-15 IR and 2.7% in the Aug-15 IR)
The MPC still suggest that the next move in rates is likely to be up.