Crude oil reached as high as 33.53 overnight but pared back some again after Saudi Oil Minister Ali Al-Naimi effectively ruled out production cuts by major producers anytime soon. WTI is trading at around 31.1 at the time of writing. WTI was rejected from 55 days EMA. The retreat in oil dragged down DJIA to close down -188.88 pts, or -1.14% at 16431.78, below key near term resistance of 16593.51 and 55 days EMA again. S&P 500 also bounced off from 55 days EMA and closed down -24.23 pts, or -1.25%. Asian markets open lower with Nikkei open lower but recovered to be trading at around -100pts down for the moment. The development today will be critical in determining the near term trend in the risk markets. In the currency markets, Sterling remains the weakest major currency this week on Brexit worries and weighs down European majors. Dollar is regaining some ground against commodity currencies while Yen becomes the strongest one again.

In US, Federal Reserve Vice chair Stanley Fischer tried to talk down the impact of recent market turmoil. He noted that “we have seen similar periods of volatility in recent years – including the second half of 2011 – that have left little visible imprint on the economy, and it is still too early to judge the ramifications of the increased market volatility of the first seven weeks of 2016.” Also he acknowledged that “the spending indicators that we have in hand for January point to a pickup in economic growth this quarter,” and there were signs of pickup in growth and wages in the first quarter. Though, he also said that “there is frequently a ‘however’ in our business – further declines in oil prices suggest that total inflation will likely remain low for somewhat longer than had been previously expected before moving back to 2%,”

BoJ governor Haruhiko Kuroda reiterated today that the central bank won’t hesitate to act if inflation outlook is threatened. Kuroda said again that BoJ will “continue to closely watch the situation of the financial markets to determine whether it could have an impact on Japan’s economy and price trends, and if we judge that it will have adverse effects, we will not hesitate to consider countermeasures.” He also noted that “investors’ excessive risk aversion has kept major stock markets weak, dollar weak as a trend since BOJ’s adoption of negative rates.”

On the data front, Japan corporate service price index rose 0.3% yoy in January. Australia wage cost index rose 0.5% qoq in Q34. Swiss UBS consumption indicator, UK BBA mortgage approvals and CBI reported sales will be released in European session. US will release new home sales and crude oil inventories.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 156.09; (P) 158.00; (R1) 159.04; More…..

GBP/JPY’s decline continues today and reaches as low as 156.29 so far. Intraday bias remains on the downside. The fall from 195.86 should now target 100% projection of 188.79 to 163.96 from 175.01 at 150.18 next. On the upside, above 159.79 minor resistance will turn bias neutral and bring consolidations before staging another decline.

In the bigger picture, a medium term top was formed at 195.86 on bearish divergence condition in weekly MACD. Fall from 195.86 is currently viewed as a correction and would likely extend to 61.8% retracement of 116.83 to 195.86 at 147.01 before completion. On the upside, break of 175.01 resistance is needed to indicate completion of fall from 195.86. Otherwise, outlook will remain bearish in case of rebound.

GBP/JPY 4 Hours Chart

GBP/JPY Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50 JPY Corporate Service Price Y/Y Jan 0.30% 0.30% 0.40%
0:30 AUD Wage Cost Index Q/Q Q4 0.50% 0.60% 0.60%
7:00 CHF UBS Consumption Indicator Jan 1.62
9:30 GBP BBA Mortgage Approvals Jan 45.2K 44.0K
11:00 GBP CBI Reported Sales Feb 16 16
15:00 USD New Home Sales Jan 525k 544k
15:30 USD Crude Oil Inventories 2.1M

This article originally appeared at Action Forex.

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