Busy week for GBP traders
Traders are currently watching the fall in Greek stock cautiously. Given how Greek stocks have traded as ADR in the US exchanges, much of this price drop has already been priced in. However, the size and speed of the fall has created a level of uncertainty. Although no spillover in European stocks has occurred so far as revised higher eurozone manufacturing PMI from its flash estimate of 52.2 to 52.4 in July has help sentiment. Outside of Greece, European equities are trading higher. It will be a busy week for GBP traders. The FX markets will have to manage the BoEs MPC rate decision, meeting minutes and inflation report all on Thursday (7:00est). The BoE will also conduct a press conference at 7:45 est. This will clearly generate volatility as participants scramble to decipher the incoming data. In regards to the inflation report, we anticipate that the outlook should be shifted slightly lower due to stronger GBP and lower oil prices, yet still hit 2% by end of forecast horizon. Its universally expected that the BoE MPC will keep rates unchanged at Thursday meeting. For the voting pattern of the rate decision we expect that two members vote for a rate hike but there is significant risk that another member joins the dissenters. This would be a bullish development for the GBP and accelerate our stronger GBP view. Finally, participants will be interested in how much the committee emphasize tightening in overall comments. We are constructive on the GBP on policy divergence especially against CHF, JPY and EUR. We expected that BoE to tread cautiously over sounding too hawkish especially in light of the failure of the Fed to upgrade its language. Yet, all other indications suggest that a rate hike could come as early as February. GBP/USD move above 1.5690 would trigger a bullish extension of strength to 1.5930 2015 highs. We remain buyers on corrections to 1.5460 support.
Switzerland: domestic sight deposits increased.
“The Switzerland’s central bank has intervened last week into the foreign exchange markets. The data that came in this morning at 9 showed domestic sigh deposits – corresponding to the cash that commercial banks hold with the central bank - that rose around CHF 800ml last week. This amount shows clearly an intervention by the SNB and agenda to further weakens the CHF (rather than just in defensive stance).
We think that even if a strong Franc would definitely weaken the Swiss growth by dampening exports, the Euro seems to have much deeper issues with Greece, growing unemployment and lack of growth. Last but not least the ECB is compelled to inject fresh money to stimulate the area. Furthermore, SNB Governor Jordan is convinced that the Swiss currency will weaken over time as the economy recovers and commercial banks look for alternatives to negative rates.
Contrary to Jordan, we think that the recovery is still not there, and in particular the Eurozone recovery is far from being sustainable. Major Eurozone countries have a debt-to-GDP which is absolutely massive and the EUR currency does not allow any its participants to debase as the Euro currency prevent those type of actions. Therefore, only strongest Eurozone economy will likely recover. All the others will simply increase their debt-to-GDP ratio and austerity policies will extend in those less fortunate countries.
Consequently, we think that the EUR/CHF will stay close to 1.0600 for the time being and we target 1.0500 within the next few days.”
EUR/USD is now holding below 1.1000. Hourly resistance lies at 1.1278 (29/06/2015 high). Stronger resistance lies at 1.1436 (18/06/2015 high). Support can be found at 1.0660 (21/04/2015 low). Over the last month, the pair is setting lower highs therefore we remain bearish over the medium-term. 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 is still moving in either direction. Hourly resistance is given at 1.5803 (24/06/2015 high). Support is given at the 38.2% Fibonacci retracement at 1.5409. Stronger support is given at 1.5330 (08/07/2015 low). 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 is increasing slowly. Stronger resistance still lies at 135.15 (14-year high). Hourly support is given by the 38.2% Fibonacci retracement at 122.04. Stronger support is given at 120.41 (08/07/2015 low). 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 is still in a short-term upside momentum. It is now challenging to break resistance at 0.9719 (23/04/2015 high). We think that the pair will likely test Again this resistance. Hourly support can be found at 0.9151 (18/06/2015 low). 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).
Resistance and Support:
EUR/USD1.14361.12781.11961.09421.08191.06601.0521
GBP/USD1.59301.58031.57091.54901.53301.51711.5089
USD/CHF1.01290.98630.97190.96150.92440.91510.9072
USD/JPY135.15125.86124.45123.97120.41118.89116.66