Forex News and Events
US Existing Home Sales much awaited
After the Fed’s minutes that surprised financial markets, the US domestic situation is back in the spotlight and will be closely monitored until the next FOMC meeting in June. Until now, the global economic slowdown, in particular the oil price collapse, has been thought to be behind the delay in a Fed rate hike, much more so than the actual state of the US domestic economy. It is now time to decide if data is supportive enough to trigger a further rate hike. Today will see the release of existing home sales data for April. Over the past few years, this indicator has traded mixed but in March it seems that it rebounded sharply. The trend is expected to continue as financial markets expect a rise to $5.40 million from $5.33 million. In April, rate hike expectations declined so it is reasonable to assume that sales went up as both mortgage prices were expected to remain weak and housing prices to strengthen.
From our vantage point, we think that the true state of the US economy is overestimated, especially the labour market, even if the unemployment rate is very low and NFP is still at a decent level. We believe that new jobs creation is more about part-time jobs than full-time jobs and that the ability to purchase a home will weaken. Downside pressures should soon appear on the housing market. The recent March pick up in new home sales and existing homes sales is due, in our view, to a diversification concern from large institutions. Indeed, US housing home-ownership rate continue to decline currently at around 63.70% - this figure was 66% in 2011.
Sell CAD on rallies
Canada will shift into the spotlight today, with the G10 calendar being light. Traders will see retail sales and inflation reads. Overall, we expect weakness in both reads as macro conditions are directly affecting the Canadian economy. March retail sales should collapse to -0.6% from 0.4% m/m, while headline CPI inflation should ease to 0.3% from 0.6% (core y/y rate lessening to 2.0% y/y from 2.1% in March). Perhaps the only saving grace for the CAD has been the uptick in oil prices. A weak export environment, wildfire forced supply disruptions, Canadian style political scandal and general sagging confidence over rebalancing efforts have put a dampener on outlook. The rates markets are pricing in further BoC easing and today’s soft data should support this theory. We remain bearish on CAD despite production losses supporting oil prices. We are focused on USD/CAD to extend the bullish rally to 1.3160.
Weekend’s G7
This weekend the two-day G7 Finance Ministers and Central Bank Governors' Meeting will be held in Sendai, Japan. The main topics on the table will be currency policy and Brexit. Policy makers, especially US officials, have stressed the need to avoided competitive devaluations. However, the G7 has also acknowledged that members need to support their domestic economy with whatever tools are available. Overall, like so many countless meeting before this we do not expect any solid initiatives, especially considering that now post-meeting communiqués are expected to be released. While the pre-meeting hype has been focused on potential Japan FX intervention and negative policy it is unlikely and decision will result in Japan not having the flexibility to defend its interest rate target. We suspect that while direct FX interventions are less probable, further easing in June is a strong possibility
The Risk Today
EUR/USD is now consolidating around 1.1200. Hourly support can be found at 1.1144 (24/03/2016 low) and hourly resistance is located at 1.1349 (17/05/2016 high). Stronger resistance lies at 1.1616 (12/04/2016 high). Expected to show further weakness. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. Key resistance is located at 1.1640 (11/11/2005 low). The current technical appreciation implies a gradual increase.
GBP/USD is consolidating after its bullish mnove. Hourly support is given at 1.4404 (15/05/2016 low) while hourly resistance at 1.4663 (19/05/2016 high) has been broken. Stronger resistance is located at 1.4770 (03//2016 high). Expected to show continued strengthening. The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.
USD/JPY's bullish momentum continues. The pair is holding above 110. Strong resistance is given at 111.91 (24/04/2016 high). Hourly support lies at 108.72 (18/05/2016 low). Expected to show further buying pressures as the pair lies within an uptrend channel. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).
USD/CHF is pushing higher and bullish momentum continues. Hourly resistance at 0.9913 (16/03/2016 high) has been broken while a break of strong support located at 0.9652 (06/05/2016 low) would confirm significant selling pressures. Expected to show continued strengthening. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.
