Forex News and Events
Central bank credibility at stake
Should we really expect something big to come from tomorrow’s Jackson Hole Policy Symposium? The Fed will, as usual, provide hawkish comments and hints that “a possible rate hike” before year-end is possible. Of course this will never happen, which is why investors are now very suspicious of the Fed and the normalization of interest rates. The major issue is that the US central bank needs inflation to kill its massive debt, currently above $18 trillion, before raising rates as well as a strong labour market. But, our view is that US economic health is overestimated. Indeed, unemployment tax receipts, aimed at funding the state workforce agencies by companies, have fallen over the past 4 years. This contradicts the notion that the US economy is actually creating jobs.
In Europe, the ECB is conducting a very aggressive monetary policy, spending at the pace of around €1 trillion per year to stimulate the economy when recent data came in at a decent level. Inflation has risen 0.4% in the last four months and PMI is still above 50 (signalling expansion) for August. The ECB is all-in while according to data, the Eurozone economy is not in a recession.
Looking to Japan, it is hard to see how things can end well for the BoJ. The central bank is now a major shareholder for one third of all companies trading on Japan’s major index, the Nikkei 225. On top of that, according to data, Japan is not even in a recession cycle but its monetary policy is simply huge and markets have already started to price an increase in the annual bond-purchase target from yen 80t to 90t. On the USD/JPY, we are clearly bearish as from our point of view, the BoJ will lose all the gains it had during the era of Abenomics. A target of yen 90 for one single dollar note within the medium-term is likely.
Gold to shine again
Gold has been the main focus of attention in the markets since the beginning of the year as investors became increasingly nervous about the apparent inefficiency of ultra-accommodative monetary policies on financial markets. Indeed, central banks have been struggling not only to drive efficiently their respective currency but also to revive growth. In such an uncertain environment, investors turned to the yellow metal, boosting its price by roughly 30% at around $1,300 an ounce. Against the backdrop of weak global growth outlook and eroding confidence in central banks, we expect gold to continue grinding higher over the long-term even though the price action will be subject to some wild swings.
EUR/CHF - Stalling Below 1.0900. 
The Risk Today
EUR/USD has reversed buying pressure to move near the low of its rising channel, yet uptrend remains strong. Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). Hourly support can be found at 1.1286 (rising channel). Expected to increase again. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.
GBP/USD momentum has broken resistance implied by the top of channel. For the time being, the medium-term bearish momentum is lively. Hourly resistance can be found at 1.3372 (03/08/2016 high). Hourly support can be found at 1.3024 (19/08/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY is trading above the 100-mark. The technical structure suggests that the pair is gaining momentum to head further lower. Strong support given at 99.02 (24/06/2016 low). Hourly resistance is given at 102.83 (02/08/2016 high). Selling pressures should continue. We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF has broken resistance at 0.9659 (09/08/2016 high) after a pickup in short-term buying interest. Hourly support given at 0.9522 (23/06/2016 low) is on target. The road is wide-open for further strengthening. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
