Markets Trade in ‘Risk Off’ Manner, BoE Downgrades Growth Projections

Risk Assets Slide, Safe Havens Gain on Growth and Trade Concerns

The dollar continued to drift north against most of the other G10 currencies, for the sixth straight day. It gained the most against NOK, SEK, CAD, and AUD in that order, while it slightly underperformed against JPY and GBP. The greenback traded virtually unchanged against CHF and NZD.

DAX — Technical Outlook

The German-top-30-company index took a strong hit yesterday, breaking below its short-term upside support line drawn from the low of January 7th, which drove the price towards the psychological 11000 support zone, where it got held. Although this has turned the near-term outlook to the downside, given that the index already experienced a sharp drop, we may see a bit of correction to the upside before another leg of selling.

BoE Stays on Hold, Downgrades Growth Forecasts

Yesterday, the big event for GBP-traders was the BoE policy decision, which was accompanied by the quarterly Inflation Report and a press conference by Governor Carney. As was widely anticipated, the Bank decided unanimously to keep policy unchanged, while in the accompanying statement officials reiterated that an ongoing tightening at a gradual pace and to a limited extent would be appropriate.

GBP/JPY — Technical Outlook

It all looked like it may be smooth sailing south for GBP/JPY in the first half of the European trading session yesterday, but all changed after BoE’s press conference, as the British pound got a boost and travelled higher. That said, the yen was the only currency that managed to hold the pound down, not allowing the British currency to get the upper hand. But today, the GBP/JPY-bulls might attempt to have another go at lifting the pair and pushing it towards the short-term downside line, taken from the high of January 25th. In our view, Brexit uncertainty could still weigh further on the pound, hence why the overall downside idea is still in play.

As for Today’s Events

The only data set worth mentioning is Canada’s employment report for January. The forecasts suggest that the unemployment rate ticked up to 5.7% from 5.6%, while the net change in employment is forecast to have slowed to 8.0k from 9.3k. When they last met, BoC policymakers kept the door open for further rate increases and noted that growth has been running close to its potential rate. However, last week, data showed that economic activity contracted in November, dragging the yoy rate down to +1.7% from +2.2%. Thus, coming on top of that release, a weak employment report may raise doubts as to whether the BoC could indeed maintain its upbeat view with regards to future rate increases.

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