Forex News and Events
Short EUR/CHF
CHF continues to be the funding currency of choice for interest rate differentials trades. The SNB interest policy is expected to be one of the last major central banks to begin normalization. EUR/CHF has bounced strongly off the 1.0700 support, popping above 1.080 in the European session. USD/CHF has surged from US election sell-off support at 0.9550, to just below 1.020. While the USD bullish momentum from the US elections impact on markets is starting to diminish, demand for USD remains strong.
The US long-end treasury yields rally has stalled, suggesting that USD/CHF upside is limited for now. CHF sensitivity to general risk-off conditions has lessened, yet geopolitical events, specifically European events are increasing demand for CHF above other currencies. There is circumstantial evidence that the SNB remains active in the EUR/CHF markets, acting to smooth downside pressure rather than reverse direction.
However, heading into Sunday 4th December, we have a key European political “shock” risk. Italy will head to the polls to vote in a referendum on a wide constitutional reform plan. Markets are now well conditioned to political surprise risk after Brexit and the US presidential elections and will not go into this even flat-footed. We are expecting to see markets positioning well ahead of Friday's market close, which equates to picking up hedges and safe haven trades near term. We see the vote having an asymmetrical risk profile with a “no” vote being significantly more negative for the EUR (positive for the CHF).
EUR/CHF 1-week implied volatility has climbed to 7.4 as traders price in the event risk. With EUR/CHF at 1.078, we see reloading short positions ahead of this weekend's risk event and closing before the weekend as a solid short-term trading strategy.
Uncertainties remain strong ahead of the OPEC meeting
Oil price's are very volatile ahead of the OPEC meeting. A barrel of Brent is trading around $47 oil. There are growing uncertainties regarding a deal. The OPEC oil production is around 32.5 million barrels a day and according to some estimates, a production of around 31.9 million barrels a day would be necessary, during the first six months of 2017, to balance current demand and supply.
In our view, several hypothesis can be stated. First of all, we do believe that the fundamental differences regarding production will not be solved at this meeting for some specific reasons especially since the dominance of Saudi Arabia is more challenged by Iraq and Iran. This is even truer since the Trump’s election.
Secondly, it is appears unlikely to us that OPEC members reach full agreement with quotas. This would of course boost prices above $50 but in the same time reopen competition from the US shale gas and the Russian oil which is something that OPEC is trying to avoid.
What we clearly believe is our third hypothesis, in that some exemptions would be made. It is not going to solve the supply glut, but will not disrupt financial markets by not setting clear targets for OPEC nation. This would limit the upside in oil prices as uncertainties would remain and in the same time trim the production.
Anyway, for the time being, markets are largely in surplus and a strong agreement is needed in order for markets to absorb the production.
The Risk Today
EUR/USD's buying pressures increase. Hourly resistance is given at 1.0686 (29/11/2016 high). Support can be found at 1.0518 (17/11/2016 high). Expected to show renewed bearish pressures. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support given at 1.0458 (16/03/2015 low) is on target.
GBP/USD is not having, at the moment, enough momentum to reach resistance at 1.2674 (11/11/2016 high). Hourly support is given at 1.2302 (18/11/2016 low). Buying pressures don't seem sufficient. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY's bullish momentum starts again. Resistance can be found at 113.90 (25/11/2016 high). Stronger resistance is given at 114.87 (16/02/2016 high). Hourly support is given around 111.36 (28/11/2016 low). Stronger support lies at 108.56 (17/11/2016 low). Expected to see another upside move. We favor 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 rally has faded. The technical structure remains nonetheless bullish. Key support is given at the parity. Hourly resistance lies at 1.0192 (24/11/2016 high). Expected to see further monitoring of the resistance area around 1.0200. 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 nonetheless a long term bullish bias since the unpeg in January 2015.
