Forex News and Events
Fed Could Impact Russia
The FOMC committee will make their much anticipated rate hike decision tomorrow. This will be the first time a decision has been made on this since June 2006 and it could potentially end a decade of zero-interest rate policy. Nonetheless, we still think that a rate hike is off the cards tomorrow. We think that the data is not supportive enough to change the current policy. Over the last few months, data has been coming in mixed. For example most recent data yesterday, including Retail Sales and Industrial Production printed below expectations.
In case of a U.S. rate hike, Russia could be a casualty, caught in the crossfire of a stronger greenback. A stronger dollar would serve to push Russia's international reserves down, (currently at $364 billion). In addition, Russia relies mainly on its oil and gas exports and its revenues are suffering from low commodity prices. Also, most commodities, which are priced in dollars, will become increasingly expensive for other countries which will have a downside effect on Russia’s revenues.
Since the beginning of the year, Russian GDP shrank by 2.2% y/y in the first quarter and by 4.6% y/y in the second quarter. Despite a potential Fed rate hike being negative for Russia, it is also worth saying that Russia has been trying to improve its relationship with China and is also trying to give up the dollar in its international exchanges. Russia is fighting for independence and to be less vulnerable to US monetary changes, especially in this period of central bank policy divergence.
Preemptive Strike?
The Swiss National Bank (SNB) has established a well-recognized reputation of front-running market expectations. Actually, it feels as if the once classic example of a conservative central bank remains consistently one-step ahead of the financial markets. Whether it’s going negative on rates, direct FX intervention, setting a minimum exchange rate for EUR/CHF or abandoning the said “floor,” the SNB certainly knows how to keep traders on their toes. Conditions are now developing for another daring SNB strike. The SNB is most likely to hold its current policy stance at tomorrow's (Thursday September 17th ) policy meeting.
Domestically, economic conditions remain fragile. Growth is still weak, despite a solid Q2 y/y read as exports are still in deep negative territory. Deflationary pressures are rising, sending CPI down -1.4% in Aug, keeping y/y negative for all of 2015. While these issues will give SNB members a fidgety night's sleep, it’s the potential action by the ECB that really concerns Swiss policy makers. Chatter from ECB members (including Draghi “willing” to act statement) and reinforcing soft European data has increased the likelihood that the ECB will have to extend its commitment for quantitative easing and/or cut its deposit rate further into negative territory.
The extension of QE is unlikely to affect CHF, however, more negative rates could spark capital inflows back into Switzerland. The SNB response will be ominously dependent on what actions the ECB is “expected” to take. We anticipate the SNB will wait until it has a clear indications on the ECB's strategy, yet it’s more likely the SNB will act first (considering the track record and weakness of domestic data), to defend against CHF strength. The first strategy would be verbal and physical intervention, then more negative rates and finally an expansion of negative rates across all sight deposits. Currently, the markets are underestimating the SNB's pledge to a weaker CHF, should the ECB move forward with lower negative rates and we see EUR/CHF reverse the current bullish trend, watch for the SNB to strike swiftly and decisively.
EUR/CHF - Holding Below 1.1000
The Risk Today
EUR/USD is moving in either direction. Hourly resistance is now given at 1.1438 (01/09/2015 high) and stronger resistance lies at 1.1714 (24/08/2015 high). Strong support can be found at 1.1017 (18/08/2015 low). The technical structure suggests a downside momentum In the longer term, the symmetrical triangle from 2010-2014 favored further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). We have broken the resistance at 1.1534 (03/02/2015 reaction high). We are entering an upside momentum.
GBP/USD is now moving sideways. There is no clear short-term trend. Hourly resistance at 1.5509 (27/08/2015 high) is at stake. Support is given at 1.5346 (10/09/2015 low). Stronger support is given at 1.5165 (04/09/2015 low). In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).
USD/JPY is consolidating around the 200-day moving average. Hourly support is given at 118.61 (04/09/2015 low). Stronger support can be found at 116.18 (24/08/2015 low). Hourly resistance can be found at 121.75 (28/08/2015 high). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF has failed to hold above 0.9700 and is now pushing lower. Hourly support is given at 0.9668 (14/09/2015 low). Hourly resistance lies at 0.9903 (11/08/2015 high). On the very short term, the pair is setting higher highs. Therefore we remain bullish on the pair. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).
