Time to buy stocks?
Market participants are upbeat today, Asian equity markets closed in positive territory after record losses with Shanghai up 5.34%, SZSE 3.33% and Hang Seng 3.60%. European equities follow the lead and are up 2.5% in average while US futures point to a higher open in New York. The big question is to determine whether this is end of the sell-off or just a temporary correction, which could be due to short-sellers taking profits - while short-selling still banned in China. In our opinion it’s a bit early to make a call as volatilities remain elevated and global growth concerns persist. Moreover, with the Fed decision due later this month, speculation is well underway. However, according to the latest news the Fed seems to be more sensitive to foreign events than most analysts expected. In addition, China is definitely fuelling global deflationary fears through the entire commodities complex.
BoJ maintains its inflation target
Yesterday night, BoJ Governor Kuroda has spoken in New York City about Japan’s inflation target. It turns out that Kuroda is still confident that the 2% inflation target may be reached by the end of 2016 with the current level of monetary stimulus. However Kuroda mentioned that the Japanese central bank stands ready to change its inflation target if needed.
Also as we mentioned yesterday, the BoJ is also thinking to increase quantitative easing as it is clear that the ongoing policies are not having the results one could expect. We consider the “Abenomics” as a huge failure. The stimulus were purely massive and there is no positive results at the moment. By the way, Q2 GDP printed at a too low -1.6% year-on-year. The country is hardly out of the deflation period and there is, for the time being, no sustainable sign of recovery. The “Abenomics” only destroyed consumer spending. And without consumer spending, no growth may occur. We keep on thinking that in a near future the inflation target will be lowered or the central bank will be obliged to create more stimulus through the usual quantitative easing.
The USD remains under pressure. Today will be released the revised figure of the U.S. Q2 GDP which is expected to come in higher than expected 3.2%q/q vs 2.3%. We remain bullish on the pair.
Swiss industry under pressure
Worrying signals continue to emulate from the domestic Swiss economy. Industrial output and construction output collapsed to the lowest level since 2009. According to Federal Statistical Office (FSO) industry and construction output fell to -2.5% in 2Q from -0.5 in 1Q while turnover fell by -5.0%. This deceleration should put additional downwards pressure on Friday GDPs read (forecasted at a weak -0.1% q/q). The erosion of exports markets due to fragile demand and uncompetitive CHF has had a clear negative impact on the Swiss economy. Recent CHF weakness against the EUR will have provided temporary relief to the SNB. Yet extreme market volatility has reversed accumulating capital outflows. We remains bearish on the CHF based on weak domestic fundamentals and dovish monetary policy and see current CHF strength as an opportunity to reload on CHF shorts.
Gold - Weakening Again
The Risk Today
EUR/USD keeps on declining. Over the last month, the pair is setting higher highs. We consider that the daily move is a retracement in a short-term upside momentum. Hourly resistance lies at 1.1714 (24/08/2015 high). Hourly support can be found at 1.1017 (18/08/2015 low). In the longer term, the symmetrical triangle from 2010-2014 favored further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). We have broken the resistance at 1.1534 (03/02/2015 reaction high). We are entering an upside momentum.
GBP/USD is approaching hourly support at 1.5425. Stronger support is given at the 38.2% Fibonacci retracement at 1.5409. Hourly resistance is given at 1.5803 (01/07/2015 high). The short-term structure shows an upside momentum. In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).
USD/JPY is increasing again toward the 200-day moving average. Support is given at 115.57 (16/12/2014 low) which is also a long term support. Stronger support can be found at 113.86 (10/11/2014 low). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF is pushing toward a strong resistance area. Hourly resistance lies at 0.9588 (21/08/2015 low) Hourly support is given at 0.9151 (18/06/2015 low) In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).
