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AUD, NZD better bid as China CPI slows

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The greenback traded lower against G10 and the majority of EM currencies as G10 draft text highlights stagnation risks on prolonged weakness in demand and the low inflation. G20 also points at weak growth in Japan and the EZ, reiterating the need for decisive monetary and fiscal action in case of need. The US 10-year yields remain below 2% while Japan and Euro-zone peripheral yields are slightly higher.

In China, the CPI accelerated at slower-than-expected pace of 0.8% (vs. 1.0% exp. & 1.5% last) on year to January, hit 5-year low. The producer prices fell by 4.3% y/y (vs -3.8% exp. & -3.3% last). The weak oil and commodity prices, combined to slow recovery revives expectations for further PBoC action. We stand ready for additional PBoC easing on rates to avoid tightening in liquidity before the New Lunar Year holidays. USDCNY trades below the Ichimoku conversion line (6.2488). Break above this level should pave the way to fresh year highs (6.2674 hit on April 30th), reinforced by vanilla calls at 6.25+. Support is seen at the baseline 6.2243.

AUD and NZD got a minor boost on dovish PBoC speculations. AUDUSD advanced to 0.7842 with slight positive bias before Thursday’s jobs report. The MACD (12, 26) will step in the green zone for a daily close above 0.7832, yet resistance is seen solid at 0.7953/0.8000 (21-dma / optionality). NZDUSD traded in the tight range 0.7393/0.7439. The short-term bullish reversal is underway should 0.7450/0.7493 (Feb resistance / 21-dma) resistance is cleared.

GBP/USD trades at Sep’14-Feb’15 downtrend channel top. The GBP-bulls remain contained before February 12th Inflation Report. The weakness in consumer prices, mostly due to sluggish oil markets, gives flexibility to the BoE to maintain the dovish policy stance. Therefore Thursday’s IR has potential to trigger fresh GBP-bears and reverse the current bullish sentiment. EURGBP consolidates losses at year low levels, slightly above 0.74 support. Option barriers trail below 0.7450/0.7400 ready to give further support to GBP verse EUR as EUR-sentiment remains comfortably negative on Grexit fears.

In Switzerland, Luc Luyet, CIIA – Senior Market Analyst: “The high levels in the SNB’s sight deposit indicate FX interventions from the Swiss central bank. Although no clear strategy has been given on the desired value of the Swiss franc against the Euro or another currency, the recent SNB’s actions suggest that a EURCHF above parity is a minimum target and that levels closer to 1.10 are likely sought after. As a result, given the persistent downside pressures on Euro caused by the ECB’s QE, the SNB is likely to further pursue FX interventions. As the SNB has shown some limits in its balance sheet expansion, further cuts in negative territory remain a likely scenario.”

USD/TRY tests 2.50 offers as the inversion on sovereign yield curve’s short-end confirms tensions on potential rate cut on February 24th meeting, should the Central Bank’s Basci gives up to President Erdogan’s pressures for lower rates. Basci has moved out of his government-owned house on February 7th according to local news agency Hürriyet. Potential exclusion of Governor Basci amid his solid resistance to proceed with rate cut on February 4th – simply because it was not the right decision vis-à-vis the markets and it would not reflect the premium on Turkey’s eco-political risks– will further revive concerns on Turkish Central Bank’s independence and should trigger decent volatility on TRY-denominated assets. Given the political risks, we remain on sidelines in TRY and TRY holdings.

Today’s economic calendar: Swiss January Unemployment Rate and CPI m/m & y/y, French, Italian and UK December Manufacturing Production m/m & y/y, Spanish December House Transactions y/y, Norway January CPI and PPI including oil m/m & y/y, US January NFIB Small Business Optimism, US December Wholesale Inventories and Wholesale Trade Sales m/m, UK January NIESR GDP Estimate and US December JOLTS Job Openings.

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