Forex News and Events
Chinese trade data comes in mixed
Chinese trade surplus eased to CNY311.2 billion in June, down from CNY324.8 billion in May in spite of an upside surprise in exports and a further contraction of imports. Exports increased 1.3%y/y in yuan terms in June in reaction to a weakening yuan. Indeed, throughout June the renminbi lost almost 1% against the US dollar with USD/CNY rising from 6.5854 to 6.6480. Similarly, a weaker yuan also means strong pressure on imports, which contracted 2.3%y/y (-1.2% expected and +5.1% previous), as the PBoC seems less reluctant to let the yuan depreciate further.
All in all, the trade reported left little room for enthusiasm as the data exposes the inability of the Chinese economy to take off in spite of both fiscal and monetary stimulus being implemented by the government and the central bank. For now, we expect the PBoC to stand on the sidelines, as further monetary stimulus would only accelerate capital outflow. Consequently, we suspect that the Chinese government will have no choice but to continue supporting its domestic economy against a backdrop of weak external demand.
Is a surprise in store for the Bank of Canada?
There are important central bank rate decisions this week. Before the BoE decision tomorrow, the Bank of Canada will announce, its rate decision this afternoon. Financial markets expect it to remain on hold at 0.50%. The consensus is that the Canadian economy is still adjusting from tumultuous oil prices and that consequently the BoC will wait for further developments in terms of growth before making any change to its monetary policy.
Our perspective is rather more bearish as we believe that the BoC is likely to cut rates from a quarter point in reaction to declining oil prices and Canadian job creation, which was negative in June, as well as in February and April. As a result, downside pressures on inflation should be expected and the BoC may be anticipating such issues. There are also mounting concerns that household debt is growing at too fast a pace and that it will negatively impact retail sales in the near future. In our analysis of Canada’s current situation we have also factored in the Alberta wildfires, the impact of which is still not exactly known but may be severe. Also, the Brexit impact still has to be quantified and qualified but the underlying difficulties faced by banks may soon also spread to Canada. Currency-wise, we are bearish on the loonie and we target the pair to increase again towards 1.35 in the medium-term.
Silver - Monitoring Downtrend Channel. 
The Risk Today
EUR/USD EUR/USD is declining again showing that bearish pressures are stronger than expected. Hourly supports are given at 1.1002 (08/07/2016 low) and 1.0913 (06/07/2016 low) while hourly resistance is located at 1.1186 (05/07/2016 high). Stronger resistance is given at 1.1479 (06/05/2016 high). Sharp moves do not have to be ruled out as there are still a lot of uncertainties on asset pricing in the market. Expected to show sideways price action. In the longer term, the technical structure favours a very long-term bearish bias 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 GBP/USD's upside pressures look strong. Hourly support can be found at 1.2798 (06/07/2016 low) while hourly resistance is located at 1.3341 (04/07/2016 high) has been broken. Uncertainties are important on the market, we absolutely do not rule out further decline. The long-term technical pattern is negative and favours a further decline as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200-day moving average). Key support at 1.3503 (23/01/2009 low) has been broken and the road is wide open for further decline.
USD/JPY USD/JPY has stalled below 105.00. Hourly supports are located far away at 100 (06/07/2016 low) and 99.02 (24/06/2016 low). Expected to further increase. 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 USD/CHF is now consolidating lower. The pair has failed to above former hourly resistance at 0.9837 (28/06/2016 high). Hourly support can be found at 0.9648 (24/06/2016 high). Expected to regain momentum to monitor resistance at 0.9956 (30/05/2016 high). 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 a long term bullish bias since last December.
