20140128

Good morning,

Equity markets continued last week's drop on back of weaker than expected US Dec Home Sales (out at 414k vs. 457k expected falling 7% from prior) which sent global sentiment on the offer following speculation that the US recovery is weaker than anticipated. Euro Stoxx fell 0.5%, while in the US, the Nasdaq lost 1.1% , while both S&P and the Dow lost 0.3%. Volatility was subdued in FX markets, where EUR/USD posted a Doji, still hovering above the 50-day SMA at 1.3661, Cable and USD/JPY rebounded after the sell-off on Friday and bidding has continued in the Asian session. Overall investors, the recent US figures have made investors in doubt on how the Fed will act on Wednesday's FOMC meeting, where the monetary policy policy will be announced. There is no doubt that interest rates will remain unchanged, but the approach on tapering will be decisive for the risk perspective. The recent softening in US rates on back of the weak figures should support risk taking and weaken the US Dollar, but the Fed can change that, by reducing the support to keep rates low. Wednesday at 19:00GMT will hold the key.

Overnight, Japanese December Corporate Service Prices came out a tad higher than expected, which proves to the BoJ that their efforts to stimulate the economy has an effect. From Australia, Business Confidence and Business Conditions for December came out better than prior, but nothing significant. USD/JPY is trading in the Ichimoku Cloud on a daily basis, which indicates that the market is lacking direction in the short term, despite the longer term still being bullish. AUD/USD has been in a down trend since October 2013, but has recovered slightly this week with 50-day SMA being key resistance (currently at 0.8929).

Today, market players will be especially focused on the UK GDP at 09:30GMT as well as the US Durables (at 13:30GMT) and the US Consumer Confidence (15:00GMT). The UK Q4 GDP is expected to drop to 0.7% from 0.8% on a quarterly basis, but increase yearly to 2.8% from 1.9%. We expect some major short term volatility in the GBP around this figure before the markets have interpreted the new information.

From the US, expectations in the Durables are on the weak side and the Consumer Confidence is expected to increase. However, we believe that markets will be on hold before the Fed takes center stage.

Have a nice day.