Forex News and Events
The Hang Seng rallied strongly for a second day as Chinese buying via the Shanghai-Hong Kong Stock Connect program drove demand. Trading volume into Hong Kong was the highest since the program began. Heavy inflows is now pushing HKD towards it upper trading band limit. However, the massive outflows came at a price, as investors probably sold Shanghai (down 1%) to fund Hang Seng purchases. In broader terms, we suspect that Asia equities will outperform European and US peers as expectations that the BoJ will add additional stimulus and regional power house, China will continue to move proactively to support soft growth through fiscal and monetary policy stimulus. USD/JPY consolidated recent gains around the 120.30 levels. USD/JPY needs to break 120.50 resistance to extend current bullish trend towards 122.05 highs. USD/CNY fix was set at 6.1338, 10 pips lower then yesterday. Elsewhere, Brent crude oil tumbled over 4.5%, as data showed an increase in inventories. Oil volatility continues to rise. The fall was especially felt in USD/CAD, as the pair rose to 1.2574. USD/CAD near term target stands at 1.2785.
Fed Split
US Federal Reserve continues to throw uncertainly into the market, like delayed volatility hand-grenades. Generally it takes a bit of time for markets to absorb and price in the information. Prior to the anticipated March 17-18th FOMC meeting minutes release, NY Fed President Dudley stated "our intention (on timing of first rate hike) would be to be conservative. I think there are strong arguments for being a little on the late side." For a market already pushing out the timing of the first policy action that was dovish enough to now start discussing no hike in 2015. U.S. 10-Year yields are pinned slightly off the Aprils lows at 1.89%, after overnight sell-off in US treasuries. The FOMC meeting continue to confound. The general feeling that that the Fed is ready to hike in June, but is also wholly data depended. This flexible thinking unsurprisingly was supported by the minutes, "several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. However, others anticipated that the effects of energy price declines and the dollar's appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016." It looks as if the Fed is now split, which will equate to every US data point becoming highly and overly scrutinized for any trifling relevance. Driving short-term volatility. Interestingly, the discussion indicated that the hawks would still prefer a June hike, if the data would allow (we assume the new weaker labor market data has taken a bit of the enthusiasm from this plan). The minutes failed to provide any new revelations over members assessment of the USD strength. The greenback was mentioned but only as factor, alongside lower oil, in broader macro context weighing on inflation.
We retain our view for a September rate hike on expectations that current soft patch in US data will reverse in the coming summer months. Yet anticipate FX volatility to escalate. The data analysis starts today with Initial Jobless claims. Initial jobless claims is expected to rise in the week ended March 28th to 283k. However, this particular reports encapsulates the Good Friday holiday which generally adds a high level of distortion. In addition Wholesale inventories is expected to come in unchanged at 0.2%. In the shorter term USD trading will choppy but contained. Baring Greece’s failure to make a €459m debt repayment to the IMF current EUR/USD sell-off to 1.0740 looks overdone.
The Risk Today
Luc Luyet
- EUR/USD is weakening within its horizontal range defined by the support at 1.0713 and the key resistance at 1.1043. An hourly resistance now lies at 1.0888. Another support can be found at 1.0613. In the longer term, the symmetrical triangle favours further weakness towards parity. As a result, any strength is likely to be temporary in nature. Strong resistances stand at 1.1114 (05/03/2015 low) and 1.1534 (03/02/2015 high). Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support).
- GBP/USD continues to move sideways. A key resistance stands at 1.4994, while a support can be found at 1.4753. Another support stands at 1.4635. In the longer-term, the break of the strong support at 1.4814 opens the way for further medium-term weakness towards the strong support at 1.4231 (20/05/2010 low). Another strong support stands at 1.3503 (23/01/2009 low). A key resistance can be found at 1.5552 (26/02/2015 high).
- USD/JPY has potentially posted a higher low at 118.72 compared to its 26 March low and has broken the resistance implied by its declining trendline. However, a decisive break of the resistance at 120.37 is needed to indicate a persistent buying interest. Hourly supports can be found at 119.64 (07/04/2015 low) and 118.72. A long-term bullish bias is favoured 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 favoured. A key support can be found at 118.18 (16/02/2015 low), whereas a key resistance stands at 121.85 (see also the long-term declining channel).
- USD/CHF has successfully tested the key support area between 0.9491 and 0.9450 and is now challenging the resistance implied by its declining trendline (around 0.9693). A break of the resistance at 0.9757 would validate a doublebottom formation, opening the way for further strength. An hourly support lies at 0.9598 (08/04/2015 low). In the longer-term, the bullish momentum in USD/CHF has resumed after the decline linked to the removal of the EUR/CHF floor. A test of the strong resistance at 1.0240 is likely. A key support can be found at 0.9450 (26/02/2015 low, see also the 200-day moving average).
