Market Brief
The FX markets are heading into another important week, after sizeable squeezes triggered by the SNB’s stepping out of the EUR/CHF currency peg on January 15th. The fact that the policy decision has been taken so abruptly hints that the SNB should have been heavily skeptical on the upcoming ECB meeting. The ECB will meet on Thursday, January 22nd and is expected to announce the so-expected full-blown QE (sovereign debt purchases). However we believe that the ECB may refrain from taking a concrete step in this month meeting as there are important pending questions around this subject, the leading ones being the size of the operation but also whether the ECB should buy Greek debt (while we are talking about a potential Grexit as Syriza may win general election due on January 25th). This being said, the actual size of the ECB balance sheet (2.1 trillion euros) is still significantly lower than Draghi’s 3 trillion target. This clearly leaves room for massive QE operation. Moreover there are talks that the national central banks may be charged to buy sovereign debt instead of the ECB. In this scenario, the size of the operation may turn out to be more than the 500 billion euros. The markets will be looking at 750bn - 1 trln operation. All in all, the selling pressures on the EUR-complex will likely remain until more clarity on the ECB. EUR/USD sold-off to 1.1460 on Friday and gap-opened at 1.1530 in Asia (after closing at 1.1569 in NY) recovered slightly1.1575. EUR/GBP traded below 0.76. We remain seller on EUR rallies.
Released on Friday, the US consumer prices retracted 0.4% on month to December, pulling the year-on-year CPI down to 0% (from 0.1% y/y exp. & last). The industrial production contracted 0.1% over the same month as expected (vs. +1.3% a month ago). Despite gloomy US data, the USD ended last week well bid across the board, extending its gains above 1% against JPY and EUR in New York. The USD long future positions expanded to 7 week high according to latest CFTC release.
Currency Tech
EUR/USD
R 2: 1.2000
R 1: 1.1871
CURRENT: 1.1629
S 1: 1.1568
S 2: 1.1377
GBP/USD
R 2: 1.5485
R 1: 1.5320
CURRENT: 1.5204
S 1: 1.5078
S 2: 1.5000
USD/JPY
R 2: 120.83
R 1: 118.75
CURRENT: 116.58
S 1: 115.86
S 2: 115.50
USD/CHF
R 2: 0.9284
R 1: 0.9132
CURRENT: 0.8743
S 1: 0.8500
S 2: 0.7406
In China, the Shanghai Composite's plunged more than 6% as the regulatory commission suspended margin trading of major brokerages on malpractices. AUD/USD rebounded down from 0.8244. With marginally positive technicals, the pair should continue challenging the topside, while 0.8250-0.8300 offers should counterweigh the bulls given the weak commodities and the USD appetite.
USD/JPY and JPY crosses traded mixed today. USD/JPY remained offered pre-118.00 in Tokyo, as Nikkei failed to hold ground above 17'000. Trend and momentum indicators remain in the bear zone, with solid resistance seen at the daily Ichimoku cloud top (118.75). EUR/JPY consolidates weakness before ECB-BoJ policy verdicts (Wed - Thu respectively). We expect the BoJ to maintain status quo and possibly revise the short-term inflation expectations lower while keeping the target unchanged. The loan support program may be announced this week helping USD/JPY to hold ground above our 115.50/57 (Fibonacci 50% on Oct-Dec rally / December low).
USD/CAD advanced to fresh high 1.2047 on Friday. Trend and momentum indicators are comfortably bullish before the BoC decision (Wed). Given the weakness in oil markets, the BoC is expected to sound dovish on the policy to sustain the fragile Canadian recovery. The USD/CAD will likely clear resistance at 1.20 through the week. Option related bids trail above 1.1950/1.2000 on dovish BoC expectations.
Today’s economic calendar: Swiss December Producer & Import Prices m/m & y/y, Norwegian 4Q Existing Home Sales q/q, ECB November Current Account Balance, Euro-zone November Construction Output m/m & y/y and Canadian November International Securities Transactions.