Forex News and Events
RBA cash rate decision (by Arnaud Masset)
The Reserve Bank of Australia will release its interest rate decision next Tuesday against the backdrop of low inflationary pressure. The last inflation report showed that consumer prices grew only 0.5%q/q while economists were expecting an increase of 0.7%. On a year-over-year basis, prices rose 1.5% versus 1.7% expected. The CPI trimmed mean (excluding the most volatile components) also disappointed, printing at 2.1%y/y versus 2.4% expected but still within the target of between 2%-3%, on average. The market has been pretty optimistic about the Australian economic outlook over the last few weeks as commodity prices recovered and easing concerns about China. However, recent data unveiled cracks in the economic machine, especially on the inflation and investment front. The long-term effects of persistently low commodity prices start slowly to unwind and are casting a cloud over the Australian economic outlook. The weak AUD played a central role in the Aussie “moderate” recovery and even if the AUD erased previous gains against the dollar, AUD/USD is still biased to the upside.
The RBA is counting on the Federal Reserves to depreciate the AUD further against the greenback. We therefore expect Governor Stevens to wait until next year before considering easing further monetary conditions. However, it will not prevent him to retain a dovish bias in the upcoming monetary policy statements, taking a chance to maintain the Aussie at levels considered weak enough by the central bank, in an attempt to increase inflationary pressures.
Swiss economy struggles (by Peter Rosenstreich)
In a disappointing read, Switzerland's October KOF Economic Barometer of leading indicators fell to 99.81 from 100.4 vs. an expected 100.1 expected. This drop was led by weaknesses in the banking, construction and tourism industries. The reports suggests that the “competitiveness of Swiss companies deteriorated further in October” as the “Swiss economy continues digesting the exchange rate shock.” Currently the policy options available to the SNB to support growth and drive inflation are limited. Swiss National Bank policy maker, Fritz Zurbrügg, recently reiterated that the franc is overvalued and would sell the CHF should conditions deteriorate further. However, with the SNB’s balance sheet close to 90% for GDP, it's unlikely that policymakers can honestly utilize direct FX intervention as an effective policy tool. The ECB signaling its intentions to ease policy further has generated mild but sustained downside pressure on EUR/CHF. It’s likely that should the ECB adjust interest rates deeper into negative territory the SNB will be forced to counter with similar actions. Given the sustained economic weakness in Switzerland and impending ECB policy actions, the real question is not if, but rather when will the SNB act. January’s events tell us that the SNB will strike proactively. Given this expected policy action we remains negative on the CHF against the USD and EUR.
The Risk Today
Peter Rosenstreich
EUR/USD has broken the minor resistance at 1.0989, which alleviating short-term concerns stemming from yesterdays bearish intra-day correction. Hourly resistance is given at 1.1387 (20/10/2015 low). Stronger resistance can be found at 1.1561 (26/08/2015 low). Since March 2015, the pair is improving. Key supports can be found at 1.0458 (16/03/2015 low) and 1.0000 (psychological support). The technical structure favours an eventual break higher. Strong resistance is given at 1.1871(12/01/2015).
GBP/USD continues to move higher and is now challenging short-term resistance at 1.5350. Hourly resistance is given at 1.5529 (18/09/2015 high). The short-term technical structure suggests a downside momentum. Expected test of the hourly support at 1.5202. In the longer term, the technical structure looks like a recovery as long as support given at 1.5089 stands. A full retracement of the 2013-2014 rise is expected.
USD/JPY is still trading above 120.00. Strong resistance is given at 121.75 (28/08/2015 high). Hourly support can be found at 118.07 (15/10/2015 low). Expected to show continued increase before targeting again resistance at 121.75. 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 116.18 (24/08/2015 low).
USD/CHF made a sharp bearish intra day reversal at 0.9957 (29/10/2015 high), which is likely to cap prices in the short-term. After a brief consolidation period the pair should be ready to challenge psychological resistance at 1.0000. Hourly support is given at 0.9476 (15/10/2015 low). Expected to show continued strengthening. 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).
