EUR/USD, GBP/USD
On Wednesday, the tone on the market was set by Japanese bonds. After the announcement of a decision by the Bank of Japan to reduce the long-term bond buy-back program, the yield on Japan's 7-year securities soared to -0.012% to -0.016% by the end of the day. The growth of yields of Japanese government bonds also pulled the yields of securities of other regions. German seven-year bond yields rose from 0.043% to 0.062%, American 7-years rose from 2.467% to 2.471%. In the evening, the US debt market caught the second, more powerful blow - the Chinese economic authorities announced the possibility of slowing or suspending purchases of US government bonds due "lost attractiveness" amid deteriorating trade relations with the United States. As a result, the euro rose in the moment by 82 points, as the pound sterling rose by 24 points.
Economic indicators of the euro area and the UK came out mixed. The trade balance of the UK for November declined from -10.8 billion pounds to -12.2 billion pounds, industrial production for the same month increased by an expected 0.4%, production in the construction sector added 0.4% against expectations of 0.7 %. Industrial production in France in December shrank by 0.5% against the forecast of -0.4%.
The news from China did have a continuation. None of the Chinese officials commented on the information spread by Bloomberg. This helped investors to work out positive growth in wholesale inventories in the US in November by 0.8%, compared to an expected 0.7% rise and an increase in the Atlanta Federal Reserve forecast for GDP for the 4th quarter to 2.8% against 2.7% five days earlier. As a result, by the end of the day the dollar has won back some of the losses, and in relation to a number of currencies, including the British pound, was able to strengthen. The greatest success was with the dollar against the Canadian currency, as President Donald Trump once again threatened to withdraw from the free trade agreement in North America - at the end of January, the penultimate round of talks on the modernization of the NAFTA treaty should take place.
So what did the Chinese mean by threatening the Americans with such a radical step? This may well be a "mirror response" (but only verbal) to US attempts to restrict trade with China or use Beijing in pressure on North Korea. But the measure announced by China is still very strong, the implementation of which will be considered a trade war with all the ensuing consequences. It is believed that the Americans will be able to solve the problem "under the rug" quietly, and this scenario is not happen. Similar threats were already coming from the Chinese in 2007, and, it is believed, it will not occur, as then.
Today an estimate of industrial production in eurozone for November will be published. An increase of 0.8% is expected after 0.2% in October. At 11:30 AM London time, minutes will be published from the last ECB meeting. A neutral tone is possible.
In the US, the producer price index in December will be released, with a forecast of 0.2% m/m and 3.0% y/y against 3.1% y/y in November. The number of initial applications for unemployment benefits is projected to decrease from 250, 000 to 248, 000. At 6:00 PM London time, the budget balance for December will be released. The forecast is -34.5 billion dollars against 138.5 billion in November. At 6:30 PM London time, the head of the Federal Reserve Bank of New York, William Dudley, will speak on the economic prospects in the Association of the Securities and Financial Markets Industry. Probably, he will strengthen the hawkish attitude to keep the markets from having excessive anxiety.
To some extent, yesterday's price rebound can considered as a technical correction. Accordingly, investors have new forces to further strengthen the dollar. We are waiting for the euro in the range 1.1880-1.1900 and further in the range 1.1810/20, the pound sterling is expected in the range of 1.3380-1.3400.
AUD/USD
Yesterday, the Australian dollar did not stand out from the generally weak trend of the USD. In the morning, China's producer price index in December showed a decline from 5.8% y/y to 4.9% y/y, the general consumer price index rose from 1.7% y/y to 1.8% y/y, while waiting 1.9% y / y. Data helped the "Aussie" continue the decline it started three days ago, but a sharp increase in the dollar on the bond shock has turned the currency up. This morning, November retail sales showed an increase of 1.2% against expectations of 0.4%, which Australian investors took with optimism. But the completion of the news came to an end very quickly, again because of the pressure of the USD. Iron ore and some non-ferrous metals are under pressure yesterday and today. At the moment, the "Aussie" has gained only 15 points since the opening of Thursday. There will be further growth in the AUD, in case of a decline in the euro and the pound, which we assume in the main scenario, is unlikely - external support is definitely weak, even the yields of Australian bonds have receded from the highs and are already close to yesterday's opening levels.
Expect the AUD/USD at 0.7750.
