Forex News and Events
Swiss watch exports disappoint
On the top-line, the outlook for the Swiss watch industry appears dire, yet looking at the underlying companies, there are some definite bright spots. Swiss watch exports fell for the 14th consecutive month as shipments fell -8.8% in August to CHF1.354bn. Weak demand was once again concentrated in the luxury segment, which declined -25.4%, while demand for mid-range models increased nearly 15%. Hong Kong, Japan, and USA again printed the sharpest falls (-28%, 27% and 12% respectively). However, China, Singapore and surprisingly UK demand recovered briskly. It has been speculated that international Swiss watches buyers in the UK are taking advantage of inventory priced in the devalued GBP to find currency-driven bargains. With the cheaper pound luring international tourist demand for Swiss watches and other luxury goods in the UK, there will continue to be demand. However, in the longer term, the overvalued CHF will further erode the sector’s competitiveness. Despite the recovery in key markets, the overall near-term outlook is grim and expectations for growth in EM Asia remain subdued. Midrange brands, such as Swatch are in a considerably strong position compared to their high-end counterparts such as Richemont. The SNB will likely be unreactive, (highlighted by last week’s dull policy meeting) with EUR/CHF at 1.09.
USD/MXN makes new high and markets watch for intervention
On the back of a strong US CPI read, the USD/MXN has blasted through all-time highs, reaching 19.62. Given the current stance of Banxico, we should expect the central bank to hike interest rates in defense of the collapsing peso. Mexico’s low reserve levels will limit direct FX interventions. The MXN is suffering from low oil prices, which limit President Enrique Peña Nieto’s ability to open energy sectors and forces deep spending cuts. This is against the backdrop of a rally in developed market bond yields and a tighter US presidential election race (Polls show Trump is tied with Clinton). Banxico has essentially suspended policy setting in anticipation of a needed reaction from the Fed. However, given the rapid deprecation of the MXN and the potentially destabilizing effect of an ultra-weak peso, action may have to be taken now. We are very confident that USD/MXN will breach the 20 psychological level near term, unless Banxico immediately and aggressively hikes rates to reverse outflows.
BoJ: What next, new stimulus?
Markets are now on hold in the run-up to both the Fed and BoJ meetings tomorrow and while markets are pricing a no Fed rate hike, the BoJ is almost certainly condemned to surprise markets. At this point of the game, there is no clear solution for the central bank, which currently sees the yen strengthening no matter what it does.
As a result, there is a decent likelihood that rates will go even deeper into negative territory (below -0.1%) and that policymakers will increase their QE asset purchases.
However, an albeit unlikely surprise from the Fed, could have the potential to totally change the game for the BoJ, which could remain on hold thanks to an unexpected increase in dollar demand. Indeed, tomorrow will be a relatively rare event with two major central banks announcing their rate decisions on the same day.
In any event, we are increasingly bullish on the USD/JPY, at least until year-end, due to growing expectations for a continued Fed rate normalization and on the back of continued policy pressures on the BoJ.
EUR/CHF - Higher Lows And Lower Highs. 
The Risk Today
EUR/USD is trading mixed since the recent increase from 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). The symmetrical triangle suggests further continued weakness below 1.1200. 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 remains above 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 at 1.3139 (14/09/2016 low) has been lower. 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 is going lower very slowly. Strong resistance can be found at 104.32 (02/09/2016 high). Hourly support is given at 101.21 (07/09/2016 low). A key support lies at 99.02 (24/06/2016 low). Expected to see lower volatility. 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 medium term momentum is clearly mixed. 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 further weaken towards support at 0.9632 (26/08/2016 low). 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.
