Forex News and Events
The Nikkei surged to 19,789, a level not seen in 15 years. The catalyst is growing evidence that the BoJ will be forced to introduce additional stimulus in 2015. The BoJ wrapped up its two-day monetary policy meeting with no change to current policy as was widely expected. As usual the only dissenter was Takahide Kiuchi who voted for a slower pace of expansion (45 trillion yen annually) wary of the destabilizing impact. Operations will be conducted to allow for the expansion of monetary policy base at an annual pace of 80 trillion yen (16% of GDP). JGB will be purchased with the average maturity to be around 7-10 years. Equity linked ETG will be purchased to roughly 3 trillion yen and J-REITS around 90bn yen annually. Corporate bonds will be maintained around 5.4 trillion yen. In regards to growth there was not change in wording, minutes stated that the economy “has continued its moderate recovery trend". Yet in regards to prices, today was the fourth consecutive downwards revision, minutes stating that core CPI ex-VAT effects “is about 0 percent". The weak, unbalanced economic recovery and low oil prices is directly challenging the BoJ 2% reflation by March 2016 target. Key to the BoJ next move will be what happens with leading growth and inflations data. We suspect that the BoJ will need solid evidence of a sustained downside risk before engaging the next round of stimulus in October (after seeing BoJ Tankan report Oct 1st). Long USD/JPY remains one of our highest conviction trades based on additional BoJ stimulus and expectation that Fed will hike interest rates in September.
Swiss inflation surprise
Switzerland March CPI inflation m/m surprised to the upside rising 0.3% against 0.1% expected (from -0.3% read). While CPI y/y fell less than anticipate at -0.9% against -1.1% expected and prior read of -0.8%. The price increase was relatively broad-based with solid increase in non-durable and semi durable goods. It looks like the economic earthquake generated by the SNB abandoning the EUR/CHF floor hasn’t materialized. With Swiss growth data not as gloomy as originally predicted and now inflation numbers surprisingly encouraging it seems unlikely that the SNB will be preemptive in additional easing measures. Or unlikely to devalue the CHF through direct FX intervention (mixed message from SNB balance sheet data chf522.3bn from chf509.2). Although further easing measures would be difficult to enact. Given the backdrop of Greek uncertainly in Europe and push out in Feds timing indicates that a strong CHF should be expected near term. Traders should watch for USD/CHF to test of 0.9450 (200d MA) major support. With the SNB on the sidelines for now watch EUR/CHF to grind lower towards parity.
FOMC minutes due
Today, traders will see the March 17-18 FOMC meeting minutes. Potentially more interesting than the removal of the word “patient”, will be any conversations regarding the effects of the stronger USD on the US economy. In addition, FOMC participants lowered their “dots” for real GDP forecasts, so discussion on the rational could be enlighten. However, given the weak NPF ready last week, the market might overlook any hawkishness. Overall, we will be watching for any sustained adjustment in growth outlook, as we are not convinced that Yellen is providing overly dovish comments to verbally weaken the USD, rather than postposing rate hikes. We suspect the USD will continue to consolidate, reacting more to dovish minute interpretation.
The Risk Today
EUR/USD is moving sideways. A key resistance area stands between 1.1043 and 1.1114 while a support can be found at 1.0713. An hourly support lies at 1.0802 (intraday low), whereas an hourly resistance is given by 1.0955 (07/04/2015 high). 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 is moving sideways. A key resistance stands at 1.4994, while a support can be found at 1.4753. An hourly resistance lies at 1.4921 (07/04/2015 high). 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, the failure to hold above the resistance at 120.37 indicates persistent selling pressures. Hourly supports can be found at 119.44 (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 remains weak, as can be seen by the succession of lower highs (see also the declining trendline). However, the key support area between 0.9491 and 0.9450 has thus far been successfully tested. Hourly resistances are now given by the declining trendline (around 0.9702) and 0.9757 (31/03/2015 high). 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).
