Forex News and Events
Fed: rates set to remain unchanged (by Yann Quelenn)
Markets are counting down the hours until the Fed's rates decision at 2pm EST/7pm BST. We are not expecting a start of the normalization path just yet, especially as the Fed has never risen rates when the probability priced by the market was less than 60%. It currently stands at 20%.
We maintain our view that the current economic data, in particular labour market and inflation data is not sufficient to trigger a rate hike. Moreover, US Total Public Debt is increasing at its fastest pace since the beginning of the crisis. As a result, increasing rates would only make it more difficult to reimburse interest without inflation to kill the debt.
The apprehension felt by the market is justified. An albeit unlikely move from the Fed could signal a deeper recession and burst both the bond and stocks bubbles. We do not believe that the Fed is willing to disrupt financial markets.
A few weeks ago, Rosengren’s hawkish declarations sent the S&P 500 to around its 2-month lows before Brainard, Kashkari and Lockhart stepped in to put out the fire. Indeed, a big issue for the Fed is an overload of communication, which should be more tightly controlled. We believe that in terms of today’s messaging we will likely hear more hawkish comments setting the scene for “the next meeting”.
Norges Bank in the background (by Peter Rosenstreich)
Financial markets remain range bound with traders unwilling to build directional positions ahead of several key central bank policy decisions. Given the enormous hype surrounding the BoJ and Fed rate decision, the Norges Bank policy-setting meeting has been over-shadowed. Of course this meeting does not have the significant market moving implications that the other headline acts have yet, in its own quiet way the Norges bank meeting is important.
In its latest MPR in June, the bank stated that further economic weakness would trigger a rate cut in September. However, the data has been surprisingly resistant, as the pace of growth and inflation above Norges’ target for over a year, has increased - driven primarily by the non-oil related sector. In addition, the housing market remains strong with prices rising 1% since June’s report and the jobless rate has fallen 0.2%.
Norwegian fundamentals are holding up, suggesting that rates will be held at 0.5% and its dovish stance will be softened somewhat. This change in tone indicates that Norway will be one of the first countries outside the US to have turned the corner. This should give the NOK an edge in G10 trading. However, much of the currency’s fate is connected to oil prices. Downside pressure on crude has decreased, with global oil prices firming.
Amid hints of a possible production agreement and the coming winter in the northern hemisphere, NOK is less likely to be dragged down by the commodity. With economic and macro conditions becoming more favorable for Norway, expectations for a rate cut should further fall, aided by a less dovish-neutral monetary policy stance. We remain bearish on EUR/NOK and suggest traders should focus on 9.00 handle.
EUR/GBP - Continued Short-Term Bullish Momentum. 
The Risk Today
Yann Quelenn
EUR/USD is weakening towards hourly support given at 1.1123 (31/08/2016 low). Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). Strong support can be found at 1.1046 (05/08/2016 low). Expected to decline towards 1.1100. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.
GBP/USD continues to weaken and is trading below 1.3000. Hourly resistance is given at 1.3091 (19/09/2016 high). Key resistance is given at 1.3445 (06/09/2016 high). Hourly support cab be found at 1.2947. Expected to show further 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 volatility has increased, even though temporarily because of the BoJ. The pair is still trading mixed. Strong resistance can be found at 104.32 (02/09/2016 high). Hourly support at 101.21 (07/09/2016 low) has been broken. A key support lies at 99.02 (24/06/2016 low). Expected to further weaken. We favour 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 continues to push slightly higher. There are periods of strong and low volatility and the pair seems without direction. Hourly support is given at 0.9691(12/09/2016 high) while hourly resistance can be found at 0.9885 (01/09/2016 high). Next resistance lies at 0.9956 (30/05/2016 high). Expected to show continued increase. 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.
