Forex News and Events
The FX markets remain focused on Thursday’s ECB meeting. As expectations for a sizeable ECB operation keep the EUR-complex under decent selling pressure, the surprise rate cut from the Danish National Bank revived speculations that the EUR/DKK peg is perhaps the next target for the speculators amid EUR/CHF floor has been removed on January 15th. The risk sentiment remains moderate, the safe-heaven flows to gold push the XAU/USD towards $1,300 today, the bull trend strengthens.
Is the EUR/DKK peg the next victim?
Expectations for the ECB QE announcement is growing (supported by French president Hollande off-the-cuff comments) and with it belief that other currency regimes can be broken. The EUR/DKK is now clearly in traders’ sight as the next target, despite a choirs of “this regime is different” then the EUR/CHF “floor”. In worried response to the increasing capital inflows and weakness of EUR/DKK, Denmark’s central bank cut its deposit rate by 15 basis points to -0.20% (last seen in 2012) to disappoint speculators. The Economy Minister Morten Oestergaard said that Denmark has a “long-lasting and politically firmly anchored fixed-currency policy” and that “this situation should not be overly dramatized” as the DNB spokesman Biltoft said that the Bank has “necessary tools” to defend the peg. In our view however, the surprise rate decision (somewhat similar to SNB move to negative rates on December) only highlights Denmark’s vulnerability. First of all, we understand from recent past actions by the SNB that negative interest rates do not dishearten risk averse traders. Losing a few basis points pales is not an important issue in comparison to stay subject to the volatilities now being experienced in the FX markets. And it’s unlikely that traders fleeing what could be a massive ECB QE program will redirect flows back to EUR. Therefore the primary tool in defending the EUR/DKK peg is direct FX interventions. Although the DNB carried lower balance sheet risk so far - as its reserves have been stable around 25% of GDP since 2010 while the SNB reserves went ballistic to 80% in that same time period - the ECB’s ultra-easy monetary policy will certainly not stop on Thursday but will exist in a prolonged states with significant probability of expansion. This will also mean continued EUR depreciation, also suggesting that the DNB balance sheet expansion has just begun. A loser policy might be good for Demark where the housing sectors is still mired in recession in the short term. Over an extended period of time however, the extreme balance sheet expansion, as the SNB learned, can become unstable.
Gold on its way to $1,300
As the risk-heaven traders are now looking for new destinations once out of the Swiss franc, the USD and the gold stand as most attractive assets. After breaking its 200-dma ($1,253.02) on January 15th (the day SNB dropped the EUR/CHF floor), the XAU/USD keeps on gaining positive momentum. The MACD strengthens to 6-month highs, while the gold trades above the 30-day upper Bollinger band for the third straight session. Given the cool-off in USD appetite, the XAU/USD should continue its ride, especially given the low risk environment pre-ECB (Thu). Option related bids should give support above $1,250 today. On the upside, we see resistance at $1,297-$1,305 area (Aug 28th 2014 – Nov-Jan ascending triangle top), $1,345 (July 10th 2014 high). The key resistance stands at $,1392 (2014 high).
EUR/CHF searches for new equilibrium
The Risk Today
Luc Luyet
EUR/USD EUR/USD has broken the key support at 1.1640 and has moved below the psychological support at 1.1500. As a result, the recent strength is seen as a temporary rebound. Hourly resistances can be found at 1.1649 and 1.1747 (intraday high, see also the declining trendline). Hourly supports lie at 1.1546 (19/01/2015 low) and 1.1460. In the longer term, the break of the strong support area between 1.2043 (24/07/2012 low) and 1.1877 (07/06/2010 low) confirms the underlying bearish trend. The long-term symmetrical triangle favours further significant weakness. Key supports can be found at 1.1000 (psychological support) and 1.0765 (03/09/2003 low), whereas a key resistance stands at 1.2252 (25/12/2014 high).
GBP/USD GBP/USD has successfully tested the hourly resistance at 1.5274 and is now close to the support at 1.5035. An hourly resistance lies at 1.5179 (19/01/2015 high). In the longer term, the technical structure is negative as long as prices remain below the key resistance at 1.5620 (31/12/2014 high). A full retracement of the 2013-2014 rise is expected. A psychological threshold lies at 1.5000, while a strong support stands at 1.4814 (09/07/2013 low).
USDJPY USD/JPY has broken the resistance at 117.96 (14/01/2015 high) suggesting an increasing buying interest. Other hourly resistances lie at 118.85 (13/01/2015 high) and 119.32 (12/01/2015 high), while a key resistance stands at 119.96 (see also the declining channel). An hourly support can now be found at 116.93 (19/01/2015 low). A long-term bullish bias is favoured as long as the key support 110.09 (01/10/2014 high) holds. Even if a medium-term consolidation is likely underway, there is no sign to suggest the end of the long-term bullish trend. A major resistance stands at 124.14 (22/06/2007 high). A key support can be found at 115.46 (17/11/2014 low). We have raised the stop-loss on our remaining long position.
USD/CHF USD/CHF is trying to find a new equilibrium after the SNB's announcement. Hourly supports can now be found at 0.8544 (19/01/2015 low) and 0.8353 (intraday low). The hourly resistance at 0.8810 (16/01/2015 high, see also 50% retracement) is challenged. A key resistance lies at 0.9132 (intraday high). Following the removal of the EUR/CHF floor, a major top has been formed at 1.0240. Given that the subsequent panic has not broken the strong support at 0.7071 (09/08/2011 low), this level should hold in the next few weeks. A key resistance now stands at 0.9132 (intraday high).
