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The Reserve Bank of India Governor Shaktikanta Das commented on India’s Financial Stability report saying that:

• India’s financial system is stable, the banking sector shows signs of improvement although the global economic environment, financial sector trends pose challenges.
• The uptick in gross fixed capital formation together with the recent decline in Crude prices bode well for sustained growth going forward.
• Banking sector appears to be on course to recovery as a load of impaired assets recedes.
• Banking sector stress test results suggest further improvement in non-performing assets ratio, though its current level remains still high for comfort.
• Sept 2017-2018 analysis shows shrinking inter-bank market, increasing bank linkages with Asset management companies- Mutual funds for raising funds and with non-banking finance companies and housing finance companies for lending.
• Some of the resolutions under insolvency and bankruptcy code are lagging behind the envisaged timelines.
• Framework for oversight of financial conglomerates also requires closer attention.
• There is a need for some rebalancing as excessive credit growth, especially if funded with short-term financing, is not stability-enhancing.
• India’s domestic financial markets shifts to credit intermediation and interconnectivity between banks and non-banks call for greater vigilance.

Analysts at ING suggest that Canada’s unemployment rate should edge up slightly in December to 5.7% while wage growth could soften the figure (again) if we see another deceleration.

Key Quotes

“Our medium-term growth outlook, and thus demand for labour, has been dampened slightly by Canada’s energy sector. Transportation constraints and inventory build-ups have triggered cutbacks in production. The central bank pointed out that the sector will be “materially weaker than expected” in their December press release.”

“Employment should be supported by the new non-medicinal cannabis market, legalised mid-October. The scope for growth is large and in turn so are hiring prospects – November saw an annual increase of 266% in cannabis-related jobs. This should help keep the unemployment rate relatively low.”

Chinese president Xi Jinping, delivering his annual New Year’s Eve address, said that the domestic economy stayed within reasonable range in 2018 and that China will implement tax cuts in 2019.

   •  The pair caught some aggressive bids and rallied to mid-1.2700s, or near three-week tops at the start of a new trading week. 

   •  The pair now seems to have found acceptance above two-week old trading range hurdle, confirming a near-term bullish break-out.

GBP/USD daily chart

   •  Technical indicators on 4-hourly/daily charts have been gaining positive traction and support prospects for additional gains.

   •  The fact that the pair is holding above important moving averages – 50, 100 & 200-hour SMAs, add credence to the bullish set-up. 

   •  Hence, a follow-through up-move, towards testing 50-day SMA around the 1.2790-1.2800 region, now looks a distinct possibility.

   •  However, slightly overbought oscillators on the 1-hourly chart warrant some caution amid relatively thin liquidity conditions.

Stefan Koopman, market economist at Rabobank, suggests that in the UK, political uncertainty is rearing its head in the latest data, which show that growth is slowing into year-end.

Key Quotes

“The manufacturing PMI rose to 53.1 from 51.7, but this was largely due to precautionary stock building in response to Brexit and to supply-chain uncertainties. Meanwhile, global trade tensions have created a very wintry export climate.”

“Growth in the services sector eased to a 28-month low of 50.4. The decline was due to a parallel drop in current activity and new work and, again, Brexit was seen as the main culprit. The composite PMI dropped to 50.7 and indicates that GDP growth has almost come to a halt in Q4.”

“Reduced investment appetite will bite into growth: we expect GDP growth at 0.2% in 18Q4 and 0.1% in 19Q1.”

According to Elliot Clarke, senior economist at Westpac, real economic sentiment of US economy can only be described as strong and resilient.

Key Quotes

“Measures of consumer confidence are materially above average, with broad– based strength across key components. For businesses large and small, this is also the case. In stark contrast however is investor sentiment.”

“In markets, the uncertainty is palpable. Irrespective of the economy’s underlying strength, if the market reacts poorly to the FOMC’s upcoming rate decisions, then the Committee may be forced to stop in its tracks.”

Ulrich Leuchtmann, analyst at Commerzbank, points out that the depreciation of crypto currencies accelerated in 2018 and after the realisation that crypto currencies are unsuitable as currencies it has now also become obvious that many are also unsuitable as a means of payment.

Key Quotes

“2018 might constitute the beginning of the end of bitcoin and that of many other crypto currencies.”

“2018 was an annus horribilis for crypto currencies. As far as bitcoin (XBT), the by far most liquid amongst the crypto currencies, is concerned, the drama started to unfold at the beginning of the year. The speculative bubble, that had started to show signs of cracks in December 2017, burst completely in January. Following a brief bounce (16.753 on 5th January) the USDXBT exchange rate dropped to 7.101 within the space of one month, or until 5th February.”

“The mother of all crypto currencies therefore lost almost 58% of its value within one month. In other words: the price of goods expressed in bitcoin recorded a rate of inflation of approx. 175% over that month. That would have been a staggering 17.5 million percent on an annualised basis. For a currency, whose proponents promote it as a protection against the risks of inflation of standard currencies, I find that an impressive figure! Bitcoin was unable to recuperate from this blow all year.”

   •  The cross extended last week’s retracement slide from the 0.9060 supply zone and has now drifted to the lower end of a near three-week-old trading range. 

   •  The price action constituted to form a rectangle on the daily chart, usually seen as a continuation pattern but also mark trend significant tops or bottoms.

EUR/GBP daily chart

   •  A sustained break below the key 0.90 psychological mark or 100-hour SMA was seen as a key trigger for bearish traders and the latest leg of a sudden drop. 

   •  Technical indicators on the 1-hourly chart are already pointing to slightly overbought conditions and thus, warrant some caution before placing fresh bearish bets. 

1-hourly chart

   •  Meanwhile, oscillators on the 4-hourly chart have been gaining bearish traction and also losing positive momentum on the 4-hourly chart, indicating further downside.

   •  The bearish technical set-up now seems to suggest that any attempted rebound is more likely to be utilized as a selling opportunity near the 0.900 handle.

According to analysts at Danske Bank, USD carry is high and it is set to rise in 2019 and expects its carry to rise more than priced into forwards at present.

Key Quotes

“Not least versus EUR, SEK and NOK, the forward premia in USD terms are now close to or above financial-crisis peaks while there is still some way to go versus JPY to reach the mid-2000 highs.”

“The high USD carry has been a common theme for currency and fixed-income markets in 2018 as the cost of hedging the FX exposure erodes the return of non-USD based investors’ portfolios of USD assets.”

“Multiple factors are behind this, notably the Fed’s interest-rate and balance-sheet policy, but also autonomous drivers of USD liquidity such as derived effects of the US debt ceiling and new financial regulation are to blame. We look for 2019 to bring more of what was seen in 2018.”

   •  After an initial uptick to mid-110.00s, the pair met with some fresh supply and accelerated the fall to fresh four-month lows in the last hour.

   •  The post-Christmas decline has been along a descending trend-channel on the 1-hourly chart, suggesting a well-established bearish trajectory.

   •  With technical indicators on hourly/daily charts gradually drifting into oversold territory, the downfall is likely to pause near the channel support.

USD/JPY 1-hourly chart