Forex News and Events
Fed’s officials are being hawkish regarding the first rate hike, increasing the odds of gradual tightening starting as soon as this year, supported by the latest CPI figures as Core CPI came in at 0.3%m/m versus 0.2% expected. Janet Yellen, reiterated its optimism about the near-term momentum of the US recovery. Federal Reserve’s Chairwomen declared that “A number of economic headwinds have slowed the recovery, and to some extent they continue to influence the outlook”. Adding that “If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalising monetary policy”. However, the Chairwomen tempered her remarks by adding “the headwinds facing our economy have not fully abated, and, as such, I expect that continued growth in employment and output will be moderate over the remainder of the year and beyond”. Mrs Yellen also made an interesting point about the job market as she acknowledged that even if unemployment rate “has come down to levels that many economists believe is sustainable in the long run without generating inflation”, current statistics don’t fully capture “the extent of slack in the labour market”. Indeed, to be classified as unemployed, people must report to actively seek work, if not they are excluded from the statistics. As a reminder, U-6 (measure including long-term unemployed and the involuntary part-time categories) reached 10.8% last April, two times the more popular U-3 measure (5.4% of total workforce for April).
The situation is therefore not that bright in the labour market and Fed’s officials are taking this information into account. Stanley Fischer said central bankers are weighing the risk of raising interest rates too early versus too late. He declared “Which is better, early and gradual or late and steep? If we raise the rate from zero it will be harder to go back to zero if there is a problem”.
Even though inflation showed signs of improvement, it won’t be enough to allow a rate hike before the end of summer. Moreover, the Fed doesn’t want to increase rate too soon and will more likely let the US economy accelerates a little bit faster before making the first move. EUR/USD is grinding lower and sits on the key support at 1.0882.
Greece to default finally?
The Greek interior minister, Nikos Voutsis, has announced that in case no deal is reached between the country and its creditors, the IMF will not be reimbursed and therefore Greece will default next month. New talks have taken place to decide over unlocking new bailout funds requirements as four instalments have to be paid to the IMF for a total amount of €1.6bn. Moreover, Greece has asked its creditors to compromise on requirements. It becomes tougher for Greece to pay its domestic wages and pensions.
Over the last few years, it has been asked to Greece to reach an unsustainable high primary surplus of about 4.5% of GDP in order to lower its debt/GBP ratio. To achieve this impossible target and comply with requirement on greater austerity, Greece has to increase value added tax, diminish (again) pensions. Needless to say that in case of default (specifically on debt owed to the ECB), Greece will likely have to leave the Eurozone. We anticipate Greece will fail to pay the IMF in June and event which will continue to weigh on the EUR/USD. A last minute agreement could provide the country with €7.2bn in remaining assistance. This would only delay the real problem while most likely sparking political turmoil. The question in our mind is only when will Greece leave the Eurozone?
EUR/USD - Sharp decline towards 1.09
The Risk Today
EUR/USD has broken the support at 1.1066 (05/05/2015 low) and is now heading to a support at 1.0820 (27/04/2015 low). Resistances lie at 1.1217 (19/05/2015 high) and at 1.1459 (15/05/2015 high). 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 has broken the support at 1.5447 (19/05/2015 low) and the rising trend-line. The pair is now approaching the support at 1.5393 (11/05/2015 low). Key resistance lies at 1.5815 (14/05/2015 high). 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). The current upwards consolidation suggests a medium-term persistent buying interest as long as support as 1.5380 holds.
USD/JPY has broken the key resistance at 122.03 (10/03/2015 high) and is now at level unseen for 8 years. The pair is still bullish as we stay above the 200-dma. Hourly support is given at 121.45 (25/05/2015 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 124.14 (22/06/2007 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF has erased the mid-term declining channel at 0.9498. Supports lies at 0.9406 (25/05/2015 low). Resistance can be given at 0.9573 (29/05/2015 high). 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).
