Forex News and Events
The USD demand drives the FX prices in G10 and EM currencies. Important swings on USD adjustments increase FX vols, especially in high beta and EM markets. AUD-traders remain undecided on direction as an event-full week ends. The RBA meeting, the overheating home lending and the choppy jobs data keep the direction unclear in AUD-complex. In Brazil, the 1-month implied vol. spikes to three year highs as the political scenarios inject additional jitters to the higher base volatility.
Australia’s housing market puzzle
It has been a data-full week for AUD-trading. On Tuesday policy meeting, the RBA maintained its overnight cash rate target unchanged at 2.50%, stating that the drop in the Aussie is still insufficient to boost the economic recovery. In his speech, RBA Governor Stevens voiced his discomfort regarding the unbalanced growth in lending for housing assets and mortgage markets, despite a moderate overall growth. Data on Friday confirmed Stevens’ fears. The home loans fell 0.9% in month to August; the owner-occupier loans (desired ones) dropped 2.0%, but the investment lending contracted only by a tiny 0.1%. Although the AUD trade ranged following the absence of detail regarding RBA tools to cool off the housing market, the expectations for macro-prudential measures should temper the AUD weakness in coming months.
The Australian housing paradox remains an important puzzle. As the mining industry slows, the Australian policymakers’ efforts to shift the labor force from the mining to construction require an attractive housing market. While on the other hand the unbalanced growth in home loans threatens the stability of economic recovery. The introduction of macro prudential measures are needed to cool off the unbalanced growth in the home lending and mortgages markets; yet may have a negative impact on the underlying labor market. The RBA action needs a quality fine-tuning to avoid macro-damages. Investors still wait (and need) to hear more on RBA solutions.
Regarding the labor market, above-mentioned structural shifts introduce important swings in seasonal patterns, thus contaminate the employment reports. This week, the Bureau of Statistics revised down the surprise surge in August employment from 121K (seasonally adjusted) to 32.1K (non-seasonally adjusted). The September data showed 29’700 jobs lost (nsa), due to 51’300 drop in part-time jobs. The full-time jobs increased by 21’600. The seasonally adjusted data will be published from October. Traders need stability to re-start trading on jobs data.
USD/BRL vols spike on political scenarios
Volatilities in BRL escalate on political scenarios, poll results. As Brazilian election talks hint at a tight competition between the current President Dilma Rousseff and her challenger Aécio Neves, the first Brazil runoff poll printed 49% of participants in favor of Neves vs. 41% for Rousseff. The USD/BRL 1-month implied vol spiked above 23% yesterday and the BRL jitters are expected to continue / increase walking into October 26th run-off.
While traders are mostly concentrated on the presidential elections, the macroeconomic data attracted little attention in week to October 10th. Yet the inflation print is rather alarming and is worth comment given that, as soon as the election euphoria is over, the FX adjustments should mostly depend on economic data. In this respect, we ring the alarm bell on deterioration in Brazilian economy. The Brazilian inflation accelerated to 6.75% on year to September, beating the consensus at 6.65% y/y. The quickening inflation is worrying especially as the consumer prices are now accelerating above the BCB’s target band (4.5% y/y, +/-2%) while the GDP growth turns negative (-0.6% q/q in 2Q) and the current account balance deteriorates. Moving forward, the increase in Fed-related volatilities, the presumed USD strength as Fed approaches policy normalization, the expected capital outflows from the EM and the BRL sensitivity to UST and USD should further weigh on the BRL. Is another Selic rate hike underway despite alarming growth? The answer is due on October 29th.
Today's Key Issues (time in GMT)
2014-10-10T10:30:00 CAD Sep Unemployment Rate, exp 7.00%, last 7.00%
2014-10-10T10:30:00 CAD Sep Net Change in Employment, exp 20.0K, last -11.0K
2014-10-10T10:30:00 CAD Sep Full Time Employment Change, last -2.3
2014-10-10T10:30:00 USD Sep Import Price Index MoM, exp -0.70%, last -0.90%
2014-10-10T10:30:00 CAD Sep Part Time Employment Change, last -8.7
2014-10-10T10:30:00 USD Sep Import Price Index YoY, exp -1.40%, last -0.40%
2014-10-10T10:30:00 CAD Sep Participation Rate, exp 66, last 66
2014-10-10T12:30:00 CAD 3Q Business Outlook Future Sales, exp 28, last 24
2014-10-10T12:30:00 CAD 3Q BoC Senior Loan Officer Survey, last -12.8
The Risk Today
EUR/USD's bounce is losing momentum near the hourly resistance at 1.2816. An hourly support lies at 1.2584 (07/10/2014 low). Another support stands at 1.2501, whereas another hourly resistance can be found at 1.2901. In the longer term, EUR/USD is in a succession of lower highs and lower lows since May 2014. The break of the strong support area between 1.2755 (09/07/2013 low) and 1.2662 (13/11/2012 low) opens the way for a decline towards the strong support at 1.2043 (24/07/2012 low). Intermediate supports are given by 1.2500 (psychological support) and 1.2466 (28/08/2012 low).
GBP/USD made a bearish intraday reversal yesterday, suggesting a weakening buying interest. Hourly supports are given by the rising trendline (around 1.6080) and 1.6027 (07/10/2014 low). Hourly resistances now stand at 1.6227 (09/10/2014 high) and 1.6287. In the longer term, the collapse in prices after having reached 4-year highs has created a strong resistance at 1.7192, which is unlikely to be broken in the coming months. Despite the recent short-term bearish momentum, we favour a temporary rebound near the support at 1.5855 (12/11/2013 low). A resistance lies at 1.6525.
USD/JPY has broken the key support at 108.01, favouring a deeper corrective phase. An initial support lies at 107.53 (09/10/2014 low, see also the declining channel). A key support stands at 106.81. Hourly resistances can be found at 108.74 and 109.23 (07/10/2014 high). A long-term bullish bias is favoured as long as the key support 100.76 (04/02/2014 low) holds. Despite a probable medium-term consolidation phase after the successful test of the major resistance at 110.66 (15/08/2008 high, see also the 50% retracement from the 1998's top), a gradual move higher is eventually favoured. Another resistance can be found at 114.66 (27/12/2007 high).
USD/CHF is trying to bounce near the support implied by its rising trendline. The hourly resistance at 0.9556 (07/10/2014 low) is challenged. Another hourly resistance stands at 0.9625. Another support can be found at 0.9433. From a longer term perspective, the technical structure favours a full retracement of the large corrective phase that started in July 2012. As a result, the recent weakness is seen as a countertrend move. A key support can be found at 0.9301 (16/09/2014 low). A resistance now lies at 0.9691 (06/10/2014 high).
