Forex News and Events
Easing on both sides (by Arnaud Masset)
Even though the UK’s decision to leave the European Union created a period uncertainty from both economic and political point of views, the announcement of measures aiming to soften the negative effects on the UK’s economy are starting to materialise.
Last week, BoE’s governor Mark Carney announced last week that the institution would take “whatever action is needed to support growth”, suggesting that the BoE will likely increase the size of its stimulus and/or cut rates. However, even though further easing will depreciate the pound, helping UK exporters, it will also increase the pressure on importers as foreign goods will be more expensive.
On the fiscal side, last Friday, George Osborne, Chancellor of the Exchequer, unveiled his plans to cut the corporate tax rate to 15% over the coming years. The plan is aimed at increasing incentives to invest in the UK. The current UK tax rate is 20% but this should reach 17% by 2020. It would be an effective way to take advantage of the weaker pound.
Indeed, it would be interesting to develop a stronger export industry in the country as long as foreign investments keep flowing and the pound remains stable at a weak level. The future status of the UK with respect to the EU will however remain the biggest uncertainty as it could reduce significantly investment flows to the UK, which put the country in a difficult situation. This morning the pound sterling was roughly unchanged, trading at around 1.3270 as investors focus on political jitters surrounding David Cameron’s succession.
Upside pressures on the loonie (by Yann Quelenn)
The Canadian currency has been trading around 1.300 for the last two months. It has been stuck at this level since crude oil prices began stalling below the 50 dollar mark. This afternoon will see the release of the Canadian Manufacturing PMI, which should print in line with previous month at around 52.
It is clear that the rebound in commodity prices since the beginning of the year has added upside pressures on the manufacturing index. The oil oversupply, associated with the increasing global demand, should keep oil trading at around this level, therefore limiting upside pressures on the CAD.
Nonetheless, we believe that in the medium-term, there are other bearish pressures on the USD/CAD. Other than commodity prices, the other key driver of the pair is of course US monetary policy. We continue to maintain our view that the Fed rate path was largely overestimated and that markets are now pricing in a rate cut before year-end, even though the probability remains small and despite the fact that some policymakers still claim that at least one raise is possible.
With this in mind we believe that financial markets have still not fully priced in the weakness of the US economy and in our view no further rate hike will take place this year. As a result, upside pressures on the loonie are set to continue and we target an exchange rate of 1.25 for the USD/CAD over the medium-term.
Silver - Surging. 
The Risk Today
Yann Quelenn
EUR/USD is trading higher. Hourly support is given at 1.0913 (24/06/2016 low) while hourly resistance is located at 1.1169 (01/07/2016 high). Strong resistance is given at 1.1479 (06/05/2016 high). Sharp moves do not have to be ruled out as there are still a lot of uncertainties on asset pricing in the market. In the longer term, the technical structure favours a very long-term bearish bias 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 is weakening. The pair has paused above hourly support lies at 1.3232 (03/07/2016 low) and hourly resistance is given at 1.3534 (29/06/2016 high). Uncertainties are important on the market, expected to show further sideways price action. The long-term technical pattern is negative and favours a further decline as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200-day moving average). Key support at 1.3503 (23/01/2009 low) has been broken and the pair is now trading around its lowest level in 31 years.
USD/JPY is increasing, even though very slowly. The medium-term technical structure continues nonetheless to favour a second leg lower. Hourly supports are given at 101.41 (27/06/2016 low) and 99.02 (24/06/2016 low) while hourly resistance is given at 103.39 (01/07/2016 high). Expected to show continued increase in the short-term. 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's upside has faded. Hourly support is given at 0.9711 (01/07/2016 low). Hourly support is resistance is located at 0.9837 (28/06/2016 high). A break of this resistance is needed to confirm a trend reverse. 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 a long term bullish bias since last December.
