Fed leaves rates unchanged:
Yesterday at the FOMC meeting, the Fed did not make any changes concerning its monetary policy. The interest rates remain unchanged at 0.25%. Yet, what was more expected was the hints that could be given in favour of a September rate hike. And no major changes from the April statements to the June statements have been done that would indicate a closer lift-off. However, interpreting those statements is a tough exercise, and one may think that a single word reveals the Fed’s intentions. The truth is that no clues have been provided about when a hike will happen. We then consider the June statement as a dovish statement.
After the meeting, the US indices closed higher, as markets are clearly doubting a September move, which would end the era of cheap money. The S&P 500 closed at +0.73%. Furthermore, the odds for a September rate hike is now assessed at 0% by the CME Group (NASDAQ:CME) FedWatch, which has it now appraised above 50% for December.
Today, all eyes will be focused on the US Q2 GDP. We think that poor data will end speculations for a September lift-off. Besides, data is expected to come in better than the disappointing Q1 figure of -0.2% q/q. Estimates are around 2.5%. We do not forget that over the last quarter, most economic data came in mixed. Consequently, we do not expect a strong GDP.
Hence, we target a short-term rebound for the EUR/USD and 1.1000 seems a decent target. However, on the medium-term, we remain bullish on the USD-complex, even if the recovery is definitely not as sustainable as what it seems. Indeed, June homes sales collapsed by 2% q/q.”
Swiss KoF Improves
In a surprise read, the Swiss KOF Leading Economic Barometer rose by 10 points to 99.8 points in July 2015 (from revised 89.8 in June). Yet, the index remains in contraction territory. In addition, the statement sounded upbeat on the outlook for the Swiss economy. In regards to the SNB decision to remove the EUR/CHF minimum exchange rate, the statement said, “the strong Swiss franc continues to place a burden on the Swiss economy, however, the first shockwave after the abandon of the minimum price is clearly losing its power.” However, the statement did admitted that its limited reach could have influenced the strong result. Yet the overall meaning, according to KOF, was that the Swiss economy should begin to normalize.
We remains skeptical that today’s KOF release is a reliable reflection of Swiss growth prospects. Recent correlation between KoF and GDP has broken down (KoF failing to measure the sharp decline in GDP growth). The shift in behavior due to the strong CHF will be a long run episode not deciphered in a month or quarter. Drop in Swiss retails sales (May-1.8%) is just a small indication that consumers are changing their behavior to the detriment of the Swiss economy.
We remain negative on the CHF and see the USD/CHF as the “purest” play for the monetary policy divergence story developing. USD/CHF further recovery above the 200MA indicates an extension of bullish trend targeting 0.9855 key resistance.
Today's Key Issues Country / GMT Jun Unemployment Rate Gross Rate, last 4.80% DKK / 07:00 Jul KOF Leading Indicator, exp 90.4, last 89.7 CHF / 07:00 May Wages Non-Manual Workers YoY, last 1.70% SEK / 07:30 2Q P GDP QoQ, exp 0.70%, last 0.40% SEK / 07:30 2Q P GDP WDA YoY, exp 2.50%, last 2.50% SEK / 07:30 Jun Retail Sales W/Auto Fuel MoM, exp 0.90%, last -3.40% NOK / 08:00 2Q Industrial Confidence, last -3 NOK / 08:00 ECB Publishes Economic Bulletin EUR / 08:00 Jul Economic Confidence, exp 103.2, last 103.5 EUR / 09:00 Jul Business Climate Indicator, exp 0.19, last 0.14 EUR / 09:00 Jul Industrial Confidence, exp -3.4, last -3.4 EUR / 09:00 Jul Services Confidence, exp 8, last 7.9 EUR / 09:00 Jul F Consumer Confidence, exp -7.1, last -7.1 EUR / 09:00 Revisions: U.S. GDP USD / 12:30 2Q A GDP Annualized QoQ, exp 2.50%, last -0.20% USD / 12:30 2Q A Personal Consumption, exp 2.70%, last 2.10% USD / 12:30 2Q A GDP Price Index, exp 1.50%, last 0% USD / 12:30 2Q A Core PCE QoQ, exp 1.60%, last 0.80% USD / 12:30 25.juil. Initial Jobless Claims, exp 270000, last 255000 USD / 12:30 18.juil. Continuing Claims, exp 2.21E+06, last 2.21E+06 USD / 12:30 New Advance Report: U.S. International Trade in Goods USD / 12:30 26.juil. Bloomberg Consumer Comfort, last 42.4 USD / 13:45 The Risk Today
EUR/USD EUR/USD has decreased, but we target a retracement to 1.1000 again. Hourly resistance lies at 1.1278 (29/06/2015 high). Stronger resistance lies at 1.1436 (18/06/2015 high). Support can be found at 1.0660 (21/04/2015 low). Over the last month, the pair is setting lower highs, and therefore we remain bearish over the medium-term. In the longer term, the symmetrical triangle from 2010-2014 favors 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). Break to the upside would suggest a test of resistance at 1.1534 (03/02/2015 reaction high).
GBP/USD GBP/USD is moving in either direction. Hourly resistance is given at 1.5803 (24/06/2015 high). Support is given at the 38.2% Fibonacci retracement at 1.5409. Stronger support is given at 1.5330 (08/07/2015 low). We expect the pair to decrease again within the next few days. 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 USD/JPY is increasing slowly. Stronger resistance still lies at 135.15 (14-year high). Hourly support is given by the 38.2% Fibonacci retracement at 122.04. Stronger support is given at 120.41 (08/07/2015 low). 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 USD/CHF is still in a short-term upside momentum. Hourly support can be found at 0.9151 (18/06/2015 low). The road is still wide open for the pair to challenge stronger resistance at 0.9719 (23/04/2015 high). The pair is gaining momentum to challenge this resistance. In the long-term, there is no sign to suggest the end of the current downtrend after failure to break above 0.9448 and reinstate bullish trend. As a result, the current weakness is seen as a counter-trend move. Key support can be found 0.8986 (30/01/2015 low).
Resistance and Support:
EUR/USD 1.14361.12781.11961.09421.08191.06601.0521 GBP/USD 1.59301.58031.57091.54901.53301.51711.5089 USD/CHF 1.01290.98630.97190.96150.92440.91510.9072 USD/JPY 135.15125.86124.45123.97120.41118.89116.66