Forex News and Events
Inflationary pressures remain high
Most Latin American countries are dealing with high inflation levels while local central banks are struggling to curb inflation expectations toward desired levels. Brazil is not the only country seeing accelerating inflation. The Colombian economy is also facing higher inflation levels as the economy adjusts to new external conditions and a substantially weaker peso. Inflation rose 4.74% in August and 5.35% in September - well above the central bank’s target of 3%, +/- 1%. In Chile, headline CPI printed at 5%y/y in August, also above the central bank’s target of 3%, plus or minus 1%. Despite lower expectations for September (4.9%y/y), the BCC is expected to increase the overnight rate at its monthly meeting on October 15th, which will bring the benchmark rate to 3.25%, up 25bps.
In Brazil, the central bank is wrestling with rampant inflation and struggling to anchor inflation expectations against the backdrop of deteriorating political conditions. IPCA inflation will be release later today and is expected to have accelerated to 0.52%m/m in September versus 0.40% in August. On a year-over-year basis, the market anticipated IPCA to have edged down to 9.48% from 9.53% in the previous month. However, so far the BCB has been unable to bring inflation expectations back to the 4.5% target for 2016. In fact, according to the latest survey, economists expect inflation to reach 5.94% by the end of 2016. Even if the BCB seemed determined to maintain the Selic at 14.25% for an extended period of time, we believe that the central bank may be forced to increase the benchmark rate as inflationary risks remain to the upside. Against the backdrop of a potential US Fed rate hike and considering Brazil’s own internal issues including the current political gridlock and fiscal chaos, the BCB is facing some tough headwinds.
Bank of Japan keeps policy unchanged
Speculations have finally ended. At the BoJ Monetary Policy Briefing in Tokyo, Governor Kuroda announced that the Quantitative and Qualitative easing program is to remain unchanged. He even declared that no further easing was needed. On the contrary, traders expected a rise in the annual pace of the monetary base. It finally holds, for the time being, at yen 80 trillion a year. Even the difficult objective of a 2% inflation target by the end of 2016 has been confirmed. Governor Kuroda used optimism in the face of adversity by stating that there is actually no way that this inflation target won’t be reached.
From our perspective, all that Kuroda has done is gained (limited) time. The BoJ semi-annual outlook report, which is expected on October 30th, will provide an update of its outlook for inflation and economic growth. We expect to see some changes as the fundamentals remain weak. Q2 GDP printed at -1.2%y/y, Industrial Production fell in August by -0.5%m/m, Retail Sales came in flat and last but not least, the CPI is taking too long to take off. As a result, the Bank of Japan will be forced to react, above all to preserve its credibility. In other words, mountains of money have flooded Japan since 2008 and revenues are still nothing compared to what has been paid for.
Japan finds itself in a difficult situation and there is definitely no sign of relief on the horizon. The debt-to-GDP ratio will just continue to surge as long as the confidence in the BoJ stands. As it’s been heard in the market “The BoJ has certainly lost confidence in its own confidence!”.
AUD/USD - Momentum Reversal 
The Risk Today
EUR/USD is moving along the direction implied by the upside trend-line. However, the bearish momentum is still strong. Support can be found at 1.1087 (03/09/2015 low). Stronger support lies at 1.1017 (18/08/2015 low). Hourly resistance can be found at 1.1330 (21/09/2015 high). 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 remain in a downside momentum.
GBP/USD has gained momentum. The 50% Fibonacci retracement has been broken. Hourly support can be found at 1.5087 (05/05/2015 low). Stronger support can be found at 1.4960 (23/04/2015 low). Hourly resistance can be found at 1.5659 (27/08/2015 high). In the longer term, the technical structure looks like a recovery. Strong support is given by the long-term rising trend-line. A key support can be found at 1.4566 (13/04/2015 low).
USD/JPY is still moving sideways. The pair is still moving around the 200-day moving average. Hourly support is given at 118.61 (04/09/2015 low). Stronger support can be found at 116.18 (24/08/2015 low). Hourly resistance can be found at 121.75 (28/08/2015 high). 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 116.18 (24/08/2015 low).
USD/CHF has broken the symmetrical triangle. The pair now targets hourly support at 0.9528 (18/09/2015 low). The pair still holds below hourly resistance at (25/09/2015 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).
Resistance and Support:
