Forex News and Events
Markets are shifting their attention towards Italy (by Yann Quelenn)
The situation in Europe is still very uncertain. The Brexit may need to be approved by the parliament and the overall economic slowdown pushing nations to vote against their current elites. The underlying crisis since 2008 still has deep consequences and massive monetary policy has not really helped. Austerity policies have prevailed. This is why we are closely looking to the next major event that will be held in Italy with the constitutional referendum next month.
A referendum would give more power to current Italian leaders whose hands would be free to implement regulations from European institutions. The situation is not going well in Italy and we do believe that austerity policies, as well as Trump’s election may trigger another vote against the Italian elites.
From a data perspective, the Italian deficit forecast was recently revised higher at 2.3% while the Italian government initially agreed 1.8% to the European institution. Deficit is growing at a fast pace. Currency-wise, the euro is likely to swing. Nonetheless, a referendum is not a sure bet. The Brexit still has a decent probability to be rejected by the UK parliament if the Supreme Court decides to oblige the parliament to vote for the acceptance of the referendum.
US bonds under pressure (by Peter Rosenstreich)
Fixed income selling pressures continue to mount as the President-elect suggests significant fiscal expansion. Sovereign bonds took a hit with yields on 10-year treasuries surging to 2.092% while the 30-year US bond rose to 2.887%. President-elect Trump has provided only the vaguest of details of his sweeping policy on the campaign trail. Yet at this acceptance speech he provided assurance that a potentially massive $600bn+ infrastructure spend is likely on the way. “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals”, Mr. Trump stated. Without much more clarity, specifically how this would be funded, why wouldn’t Trump go for the quick win by fiscally stimulating a sub-growth economy on a cyclical downturn. Even fiscally conservative republicans are showing exhaustion from spending constraint. It is unlikely that Trump will find much resistance, considering the republican viewed mandate forcing the majority run House and Senate will fall in line. This new “Trumpflation” is pressuring yields already on the run under a tight labor market and rising inflation is pressuring wages. Increasing speculation that the Fed will raise rates 25bp in December and two to three times in 2017. Long term inflation expectations are rising and with it US bond yields. Widening US spread differentials against high yielding EM currencies should come under further selling pressure. In the near term, we anticipate continued USD strength best seen through long USD/JPY positions. AUD/USD also remains vulnerable as a proxy trade of weak Asian EM currencies (especially as more details on President Trump's policy are released). However in the mid-term, we are dubious of how much inflation, even a fiscal expansion the US economy can generate. Trump's infrastructure plan should add 0.2% to GDP yet stronger USD and low energy costs will keep a lid on prices. In addition, as the external demand environment struggles, the US will continue to import deflation. We see it more likely that the Fed will raise once by 25bp in late 2017.
GBP/USD - Bullish Breakout. 
The Risk Today
Yann Quelenn
EUR/USD's volatility is now very low after Trump's election. Key resistance at 1.1352 (18/08/2016 high) looks far and the pair is now edging slightly lower. Expected to see further decline. 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 has broken resistance at 1.2557 (04/11/2016 high) while hourly support is given at 1.2354 (09/11/2016 low). Strong resistance stands far away at 1.2771 (05/10/2016 high). The short-term technical structure suggest further strengthening. 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 buying pressures are growing. Hourly resistance at 105.53 (28/10/2016 high) has been broken. Key support can be found at 100.09 (27/09/2016). 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 continues to push higher. The pair lies within a resistance area where sales pressures are likely to increase. The pair has already largely retraced, yet further upside moves are likely to happen before reloading bearish positions. 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.
