Forex News and Events
The FOMC minutes of the June 16-17 meeting didn’t provide support to US bulls as Federal Reserve officials remained cautiously optimistic about the outlook of the world’s biggest economy. Most committee member acknowledged that the economy didn’t gain momentum as certain sectors of the economy are still struggling to show substantial signs of improvement. More specifically, the committee emphasised that a strong dollar and low crude oil prices weigh on both manufacturing and mining sectors. Members also noticed that inflation pressure remained subdued as labour compensation rose at a moderate pace, together with low energy prices. Despite those drawbacks and the very cautious tone of the minutes, policy markers “saw economic conditions as continuing to approach those consistent with warranting a start to the normalization of the stance of monetary policy”. In addition, “all members but one indicated that they would need to see more evidence that economic growth was sufficiently strong and labour market conditions had firmed enough to return inflation to the Committee's longer-run objective over the medium term”.
Despite the committee’s optimism, we did not see further improvement in the US economy so far and therefore, we believe that a September rate hike is too ambitious. The developments in China and the Greek crisis are weighing on the global economy and the US are no exception.
How do you say “Sell in May and Go Away” in Chinese?
It is a very difficult time for China at the moment. The Shanghai composite index has fell over 25% since mid-June when it reached a seven-year high at 5166 points. Chinese stocks climbed by a massive 162% from the lowest 2014 level. This morning, the Chinese market opens at more than 2% lower, with 400 stocks that went immediately down by 10 %. In addition, around 1’400 stocks were suspended.
Chinese stocks markets are now playing a large role in the Chinese society as more and more person decided to invest in their savings. However, it is worth adding that China’s equity markets represent less than 15% of household financial assets.
The People’s Bank of China, in order to stop the decline, rushed to intervene by easing money supply for fuelling the stock markets. In addition, China’s central bank can be seen as changing the rules at it forbids large investors owning more than a 5% stake to sell their shares over the next six months.
Despite the fact that China and the PBoC are still trying to keep control of the markets, shares prices are clearly heading toward the south. Over the last month regulations on margin financing, equity transactions have been eased. Even the reduction of IPO’s to support current stocks had only a medication effect. Yet, the disease is still there.
The main issue now is to still be confident by investing in China as rules may change overtime. Furthermore China is now paying the fact that liquidity flowed on the stock markets and therefore made shares largely overvalued. China’s credit market debt outstanding is about $1 trillion. Their economy is clearly at stake as it may only be the start of a bursting credit bubble.
USD/CAD - Pausing
EUR/USD has broken support at 1.0955 (29/06/2015 low). Hourly resistance is at 1.1278 (29/06/2015 high). Stronger resistance lies at 1.1436 (18/06/2015 high). Hourly support is given at 1.0916 (07/07/2015 low). We expect the pair to remain below 1.1100. In the longer term, the symmetrical triangle from 2010-2014 favors 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). Break to the upside would suggest a test of resistance at 1.1534 (03/02/2015 reaction high).
GBP/USD has bounced at support given at 1.5330 (08/07/2015 low). Hourly resistance can be found at 1.5930 (18/06/2015 high). We expect the pair to decrease again within the next few days. 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 has declined sharply. Hourly support is now given at 118.89 (14/05/2015 low). Hourly resistance can be found at 124.45 (17/06/2015 high) and stronger resistance still lies at 135.15 (14-year high). The technical structure still suggests a downside momentum as the pair is setting lower highs. 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 has failed to challenge hourly resistance at 0.9543 (27/05/2015 high). Stronger resistance can be found at 0.9719 (23/04/2015 high). Hourly support can be found at 0.9151 (18/06/2015 low). We expect the pair to try again to challenge again hourly resistance at 0.9543. In the long-term, there is no sign to suggest the end of the current downtrend. After failure to break above 0.9448 and reinstate bullish trend. As a result, the current weakness is seen as a counter-trend move. Key support can be found 0.8986 (30/01/2015 low).
