Forex News and Events
Germany: Improving data and significant speculation on the bund
Plenty of German economic data was released early this morning, notably Q3 final GDP, which printed exactly in line with preliminary data. No revisions were made and the economy strengthened 1.5% y/y but only expanded by 0.2% q/q.
Private consumption also rose during the third quarter to 0.3% q/q. Nevertheless, we think that the economic data is not sufficient to push the euro higher for the time being, indeed the ECB remains largely dovish.
German yields are in an upward trend and 10-year bund yields are stalling below 0.25%. At the same time, German yields have dropped to record-lows. Indeed there are strong speculations that the ECB will tweak its asset-purchase program in order not to run out of bonds. Markets are therefore not focused on data but on central banks.
We are in an era where economic data plays second fiddle to central bank policy. In our view it is very likely that the ECB will allow itself to buy bonds with yields below the depo-floor (-0.4%), which explains the current appreciation of the German 2-year bund.
Swiss data improves
Swiss data released today had provided some much needed good news. Swiss industrial production rose 0.4% from a revised lower -1.3% y/y, while industry construction output increases 1.1% from a revised lower -1.9% y/y. After a weak 2015, industrial data is finally trending nicely higher. The steady depreciation of the CHF has elevated some of the exchange rate fears that have dominated sectors such as luxury goods. SNB verbal intervention continued with the SNB's Maechler stating that the central bank stood ready to “act if needed”.
While the USD rally has lessened, pressure on the CHF and the long USD/CHF trade has become a favorite for yield differential traders. With the Fed shifting towards further normalization and the SNB keeping interest rate negative indefinitely (Maechler mentioned that weak CPI data indicated that current policy was appropriate), the trade feels like a sure bet. Interestingly, Maechler mentioned that the SNB was ready to act over the Italian referendum.
Italy is expected to vote on constitutional reforms on Dec 4th and the resulting uncertainty could trigger significant FX volatility. CHF continues to provide a strong trade in calm markets but remains the safe haven trade of choice for most geopolitical disturbances. Looking at the 2017 calendar (especially the European risk events) it is hard to forecast one directional CHF weakness. In addition, in the mid and long term we remain bearish on USD on expectations that the Fed normalization cycle will peak at 1.5%, rather than the 3.0% the Fed forecasts.
EUR/USD - Monitoring Long-Term Support. 
The Risk Today
EUR/USD's buying pressures are clearly on. Hourly resistance is given at 1.0652 (intraday high). A break of resistance at 1.0746 (17/11/2016 high) is needed to confirm a reversal. Expected to show continued weakness. 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 is given at 1.0458 (16/03/2015 low).
GBP/USD is not having enough momentum to reach resistance at 1.2674 (11/11/2016 high). Hourly support is given at 1.2302 (18/11/2016 low). Expected to see continued weakness. 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 continues after consolidating above 111. Hourly resistance is given at 113.52 (intraday high). Support is given around 109.80 (16/11/2016 low). Stronger support lies at 108.56 (17/11/2016 low). Expected to see further upside moves. 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 is back on. The technical structure remains strongly bullish. Hourly resistance given at 1.0134 (22/11/2016 high) has been broken. Expected to see further strengthening. 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.
