Forex News and Events:
FX traders face an exceptionally crowded day this Thursday. The ECB July verdict (11:45 GMT), the ECB President Draghi’s monthly press conference (12:30 GMT) and the US jobs data (12:30 GMT) are all scheduled later in the day and should trigger volatility across the board. While we do not expect any changes out of the ECB meeting today, we will be closely monitoring Draghi’s comments. Does ECB retreat to a wait-and-see mode after the heavy stimulus package announced on June 5th or are there more surprises hidden in Draghi’s hat? In US, yesterday’s ADP report greatly surprised on the upside sending US 10-year yields above 2.60%, we expect consolidation pre-US holidays should the NFPs match the market optimism.
Aggressive rate cut from Riksbank hits the Krona
Riksbank played hard at the July policy meeting, lowering the repo rate from 0.75% to 0.25%. Economists expected 25 basis points cut. The main driver behind the sharp policy action is the decline in underlying inflationary pressures. The year-on-year consumer prices couldn’t make it higher in May (-0.2%), the April recovery (-0.04% after significant drop of -0.63% in March, the lowest since December 2009) lacked the critical follow through. Combined to low inflation dynamics in the Euro-area and ECB’s additional stimulus package announced on June 5th, Riksbank didn’t have much of a choice in this fight to keep its inflation target anchored at the distant 2%. This said, we are clearly concerned about the impact of such rate easing on household indebtedness, home prices and the behavior of the pick-up in consumer prices.
As knee-jerk reaction, the heavy USD/SEK unwind dominated the European morning session. SEK rallied from 6.7030 to 6.8756 (-1.80%) hitting the highest levels since September 2012. Trend and momentum indicators reversed sharply now shifting eyes to 6.9254 (Fibonacci 38.2% level on 2012-2013 drop), then 7.0000 (psychological level). On the downside, support should start building at 6.6763 (Fib 61.8%). On a similar pattern, EUR/SEK jumped to 6.3887 (highest since November 2010). The key resistance stands at 9.4275/9.4300 region (Oct-Nov 2010 resistance), then 9.5579 (Fibonacci 61.8% projection on 2009-2012 debasement).
Event-full Thursday for EUR
An event/data full day is ahead of EUR/USD traders. The ECB will give policy verdict at 11:45 GMT and is expected to keep the status quo at historical low levels: the main refi rate at 0.15%, the marginal lending rate at 0.40% and the deposit rate at -0.10% as fixed on June 5th meeting. In his press conference (12:30 GMT), the ECB President Draghi is expected to keep the dovish stance. Through his previous communications, Draghi had mentioned that a worsening medium term outlook for inflation would require a Fed-like QE program. The IMF has also recommended a broad asset purchases program in the Euro-area, a week after the ECB announced its additional stimulus package. We believe that the President Draghi will be brought to comment on the subject, however do not expect any leading information. Draghi’s communication will most probably focus on the latest measures put together. Since the cut in interest rates, the Eonia traded at record low levels - very close to 0.0%, the Eonia curve has flattened as the TLTROs will mature in 2016 the earliest.
Regarding the FX market, EUR weakened broadly versus its G10 peers (except SEK and NOK) since June 5th meeting. If EUR/USD weakness did not extended beyond 1.3503 (June 5th), it has been mostly due to selling pressures on USD across the market. Thus the post-ECB weakness has been digested softly, EUR/USD rises steadily following its corrective uptrend channel building since June. Stabilization above the 200-dma post-ECB will signal that traders’ motivation shift back towards advantageous real rates in EUR holdings due to soft Euro-zone inflation. However, the US jobs data will most probably interfere with the course of euro at the time Draghi will start speaking (12:30 GMT).
Today's Key Issues (time in GMT):
2014-07-03T11:30:00 USD Jun Challenger Job Cuts YoY, last 45.50%2014-07-03T11:45:00 EUR ECB Main Refinancing Rate, exp 0.15%, last 0.15%
2014-07-03T11:45:00 EUR ECB Marginal Lending Facility, exp 0.40%, last 0.40%
2014-07-03T11:45:00 EUR ECB Deposit Facility Rate, exp -0.10%, last -0.10%
2014-07-03T12:30:00 CAD May Int'l Merchandise Trade, exp -0.30B, last -0.64B
2014-07-03T12:30:00 USD May Trade Balance, exp -$45.0B, last -$47.2B
2014-07-03T12:30:00 USD Jun Change in Nonfarm Payrolls, exp 215K, last 217K
2014-07-03T12:30:00 USD Jun Two-Month Payroll Net Revision
2014-07-03T12:30:00 USD Jun Change in Private Payrolls, exp 215K, last 216K
2014-07-03T12:30:00 USD Jun Change in Manufact. Payrolls, exp 10K, last 10K
2014-07-03T12:30:00 USD Jun Unemployment Rate, exp 6.30%, last 6.30%
2014-07-03T12:30:00 USD Jun Average Hourly Earnings MoM, exp 0.20%, last 0.20%
2014-07-03T12:30:00 USD Jun Average Hourly Earnings YoY, exp 1.90%, last 2.10%
2014-07-03T12:30:00 USD Jun 28th Initial Jobless Claims, exp 313K, last 312K
2014-07-03T12:30:00 USD Jun Average Weekly Hours All Employees, exp 34.5, last 34.5
2014-07-03T12:30:00 USD Jun 21st Continuing Claims, exp 2560K, last 2571K
2014-07-03T12:30:00 USD Jun Change in Household Employment, last 145
2014-07-03T12:30:00 USD Jun Underemployment Rate, last 12.20%
2014-07-03T12:30:00 USD Jun Labor Force Participation Rate, last 62.80%
2014-07-03T13:45:00 USD Jun F Markit US Services PMI, exp 61, last 61.2
2014-07-03T13:45:00 USD Jun F Markit US Composite PMI, last 61.1
2014-07-03T14:00:00 USD Jun ISM Non-Manf. Composite, exp 56.3, last 56.3
The Risk Today:
EUR/USD has broken to the upside out of its horizontal range defined by 1.3503 and 1.3677. However, the lack of follow-through and the breach of the support at 1.3651 suggest a weakening buying interest. Hourly supports can be found at 1.3629 (38.2% retracement, see also the rising channel) and 1.3565 (20/06/2014 low). Resistances stand at 1.3700 (01/07/2014 high) and 1.3734. In the longer term, the break of the long-term rising wedge (see also the support at 1.3673) indicates a clear deterioration of the technical structure. A long-term downside risk at 1.3379 (implied by the double-top formation) is favoured as long as prices remain below the resistance at 1.3775. Key supports can be found at 1.3477 (03/02/2014 low) and 1.3296 (07/11/2013 low).
GBP/USD has broken the major resistance at 1.7043. A short-term bullish bias is favoured as long as the hourly support at 1.7063 (19/06/2014 high) holds. An initial support lies at 1.7096 (01/07/2014 low). In the longer term, the break of the major resistance at 1.7043 (05/08/2009 high) calls for further strength. Resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low). A support lies at 1.6923 (18/06/2014 low).
USD/JPY continues to improve as can be seen by the break of the resistance at 101.74 (27/06/2014 high, see also the 200 day moving average). Monitor the resistance implied by the declining channel (around 101.92). Another resistance lies at 102.36. Hourly supports can be found at 101.41 (02/07/2014 low) and 101.24. A long-term bullish bias is favoured as long as the key support 99.57 (19/11/2013 low) holds. A break to the upside out of the current consolidation phase between 100.76 (04/02/2014 low) and 103.02 is needed to resume the underlying bullish trend. A major resistance stands at 110.66 (15/08/2008 high).
USD/CHF has bounced near the low of its declining channel. However, a break of the hourly resistance at 0.8915 (30/06/2014 high) is needed to negate the short-term bearish trend. Another resistance lies at 0.8975. A key support area stands between 0.8841 and 0.8831 (61.8% retracement). From a longer term perspective, the bullish breakout of the key resistance at 0.8953 suggests the end of the large corrective phase that started in July 2012. The long-term upside potential implied by the double-bottom formation is 0.9207. A key resistance stands at 0.9156 (21/01/2014 high).
