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FXStreet (Delhi) – Renuka Fernandez, Senior Rates Strategist at TDS, suggests that after the UK rates reacted sharply to the BoJ cut, they see opportunities to pay front end UK rates.

Key Quotes

“Risk/reward is quickly shifting in favour of positioning for higher UK rates – a further move lower in yields from here would really need the BoE to actively ease. The moves across the UK swap surface resemble, in shape, the moves across the JPY surface – suggesting the price action of a bank in easing mode, which is not reasonable in our view.

Whilst the moves across the UK swap surface have been fairly uniform, risk/reward looks the most attractive across the 1Y-2Y tenors where levels are at extremes from fair value (PCA derived).

We recommend a Dec 16/Dec 17 steepener in short sterling at 33bps, target 44bps, stop loss 27bps.

This can similarly be expressed with an outright short in 2y gilts (1% UKT 2017) at 34bps, targeting 59bps , with a stop at 24bps, as well as 12X24 Sonia.”

Renuka Fernandez, Senior Rates Strategist at TDS, suggests that after the UK rates reacted sharply to the BoJ cut, they see opportunities to pay front end UK rates.

(Market News Provided by FXstreet)

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FXStreet (Mumbai) – The ongoing recovery in GBP/USD pair found fresh legs earlier in Asia and now extends higher towards 1.43 handle, having taken-out 200-SMA at 1.4257.

GBP/USD aims to regain 5-DMA

The GBP/USD pair trades 0.14% higher at 1.4263, flirting with fresh session highs reached at 1.4266 few minutes ago. The cable keeps its recovery mode intact from 1.4150 region and remains firmer, completely unperturbed by the weak China data-led risk-aversion wave that knocked-off higher-yielding assets such as the Antipodeans, oil, equities and industrial metals.

Moreover, the GBP/USD pair is benefiting from broad based US dollar weakness as markets continue to assess the recent streak of downbeat US macro data and its impact on the Fed rate hike outlook. Last Friday’s advance GDP report showed that the US economic growth slowed sharply in Q4 2015, expanding at 0.7% y/y.

Markets now await the UK manufacturing PMI for fresh cues on the major ahead of the BOE’s ‘Super Thursday’ later this week. The UK manufacturing PMI is seen heading slightly lower to 51.8 from 51.9 recorded in December.

GBP/USD Levels to consider

The pair has an immediate resistance at 1.4300/07 (round number/ 20-DMA), above which 1.4341 (Jan 19 High) would be tested. On the flip side, support is seen at 1.4200 (psychological levels) below which it could extend losses to towards 1.4171/47 (Jan 26 & 29 Low).

The ongoing recovery in GBP/USD pair found fresh legs earlier in Asia and now extends higher towards 1.43 handle, having taken-out 200-SMA at 1.4257.

(Market News Provided by FXstreet)

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FXStreet (Delhi) – Tony Kelly, Research Analyst at NAB, notes that the U.S. GDP growth slowed in the December quarter to 0.2% qoq (0.7% annualised).

Key Quotes

“Most components slowed or stayed weak. The main detractors from growth were inventories and net exports. US dollar appreciation and falling energy prices are weighing heavily on some sectors.

Despite these headwinds, over the last year domestic final demand have held up, and the economy is expected to growth at a moderate pace. We expect GDP growth of 2.2% in 2016 (previously 2.3%) and 2.3% in 2017, although downside risks have increased.”

Tony Kelly, Research Analyst at NAB, notes that the U.S. GDP growth slowed in the December quarter to 0.2% qoq (0.7% annualised).

(Market News Provided by FXstreet)

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FXStreet (Delhi) – Imre Speizer, Senior Market Strategist at Westpac, suggests that the 0.9250 level should cap the NZD/AUD cross this week, with a break below 0.9110 expected.

Key Quotes

“Global sentiment plus a good run of economic data favour continuing AUD outperformance. There may be little tension over the RBA decision on the cash rate on Tue but the statement will be perused closely as always. Also out are the Dec trade balance and building approvals (Wed), and Jan’s TD inflation gauge.

3 months:

Our main argument for a lower cross (sub-0.91 multi-month) is the RBNZ is expected to ease again this year, whereas the RBA should remain on hold for some time. In addition, demand for AUD should get a boost from M&A activity. Risks to this view is the performance of the Chinese stockmarket and global commodities, which typically affect the AUD more than the NZD.

1 year:

We expect the cross to trade at 0.90 or below in a year’s time.”

Imre Speizer, Senior Market Strategist at Westpac, suggests that the 0.9250 level should cap the NZD/AUD cross this week, with a break below 0.9110 expected.

(Market News Provided by FXstreet)

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FXStreet (Mumbai) – The persistent risk-condition in Asia came under pressure following the release of weaker set of manufacturing PMI reports from China, with the Aussie suffering the most among the G10 currencies. While the euro emerged the top performer amid wide-spread risk-aversion.

Key headlines in Asia

China manufacturing PMI for January worse-than-expected

China Jan Caixin PMI remains low, beats expectations

Dominating themes in Asia – centered on JPY, AUD and NZD

A renewed bout of risk-aversion hit Asia this Monday, and investors gave up risky assets such as equities, oil and industrial metals in favour of low-yielding/safer bets such as gold, euro and the Swiss franc. The yen was an exception among the safe-havens today as the recent BOJ’s surprise rate cut moves continues to weigh on the Japanese currency, and thus, the USD/JPY pair remains indifferent to the persisting risk-averse conditions. The major trades 0.07% higher at 121.20, capped by 200-DMA placed at 121.47.

While the AUD/USD pair was the biggest loser as renewed sell-off in commodities on the back of worse-than expected China PMI data continues to hurt the resource-linked Aussie. NZD/USD also remained in the red and hovered below 0.65 handle amid China-led risk-off trades. China’s official PMI gauge slid to a three-year low of 49.4 in January, from 49.7 a month earlier. While the Caixin PMI came in at 48.4 in January, against 48.2 in December, although remained deep in contraction.

Traders sought safety amid China-led uncertainties and preferred to hold safer-bets, with the EUR/USD rising 0.15% to 1.0850, while gold gains 0.35% to $ 1122 levels. Among the Asian equities, the Nikkei extended its post-BOJ rally and rose +1.75%, while ASX 200 index pared gains and now trades +0.73%. The Chinese equities are back in the red, with the benchmark Shanghai Composite down nearly -2%.

Heading into Europe and North America

An eventful start to the week ahead, with the EUR calendar filled with plenty of risk events, including a raft of final manufacturing PMIs from across the Euro area economies. While the main market mover in the European session ahead is expected to be the UK manufacturing PMI report.

The flash PMI for Germany’s manufacturing sector activity recorded 52.1, with the indicator expected to hold in the final result. While the UK manufacturing PMI is seen heading slightly lower to 51.8 from 51.9 recorded in December.

Looking towards the North American session, we have a series of US macro updates for release, with the Fed’s favorite inflation gauge, the core PCE price index to kick-off a busy NY session. While, the ISM manufacturing PMI will follow along with final PMI and construction spending data.

Besides, ECB President Draghi is due to testify about the 2015 ECB Annual Report before the European Parliament, in Strasbourg. While FOMC Member Fischer is also scheduled to speak about the US economy and monetary policy at the Council on Foreign Relations, in New York.

The persistent risk-condition in Asia came under pressure following the release of weaker set of manufacturing PMI reports from China, with the Aussie suffering the most among the G10 currencies. While the euro emerged the top performer amid wide-spread risk-aversion.

(Market News Provided by FXstreet)

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