Forex News and Events
Yellen to speak in Baltimore
After reaching 103.53 last Thursday, the US dollar continued to lose ground against most currencies. The correction was especially acute against the Japanese yen and emerging market currencies as market participants realised that the USD rally is most likely done. The greenback fell as much as 0.80% against the JPY with USD/JPY testing the 117 support level before stabilising at around 117.30. The Russian ruble also found some buying interest on Monday as USD/RUB fell 0.50% to 61.7590. The recent pick-up in crude oil prices following the OPEC output cut deal gave a positive boost to the Russian currency. Moreover, the improving outlook for US-Russia relations will likely renew investor appetite for Russian assets should oil prices remain around the $50 threshold. The Norwegian krone was also better bid against the USD amid further oil strength. USD/NOK erased Friday’s losses and returned to 6.6385 as the Brent crude price rose 0.80% to $55.65 a barrel.
Janet Yellen will speak on the state of the job market at the University of Baltimore this evening (GMT 18:30). However, we do not expect the Fed Chair to make sensational declarations, especially in light of the recent dollar gains. Indeed, further dollar strength would definitely not be a good thing for the US economy and would dampen exports and jeopardise reflation. US treasury yields continue their downward adjustment with 2-Year yields sliding to 1.24%, while 5-Year yields are heading towards the 2% threshold. We believe that there is room for USD depreciation as it will be seen as a healthy correction.
BoJ to remain on hold this Wednesday
The Bank of Japan will decide on its monetary policy this Wednesday and we expect the main policy rate to remain unchanged at -0.10%. We believe that the current dollar appreciation is providing some relief to Japanese policymakers.
However, there are still some concerns such as the 10-year government bond which is yielding close to 0.1% - the highest level of the year. This indicates that the yen may finally strengthen again if 10-Year yields push even higher. This is likely to push the BoJ to increase the purchase of bonds of which are already scarce, which would definitely be a growing concern in the medium term.
For the time being, the yen continues its fall and stronger oil prices are increasing downside pressures on the currency, which is a good news for the country's inflation target of 2%.
Finally, if US rates continue to move higher, we believe that it would cause an increase of the 10-year Japanese bond target of 0%. Nevertheless, in our view, the US rate path is largely overestimated by markets and consequently the Japanese yen should strengthen in the medium term because of the disappointment caused by the Fed. Indeed, the Fed has been overestimating the US normalization path for quite some time.
Stay short gold
From a fundamental and technical perspective gold continues to look like a short. Steady selling price pressure from September $1350 levels should persist as gold sensitivity to political event risks has lessened significantly. In fact, there was almost no reaction from the precious metal to the Italian constitutional referendum. Since the narrative of 2017 is political risk, gold is uncharacteristically without a driver. With the Fed becoming more hawkish in the past weeks and global economic data suggesting that the international growth and ‘reflation’ story is gaining momentum, macro conditions should provide further headwind for gold bulls. In addition, the void expected when monetary policy hits the exhaustion point is now being filled by expansionary fiscal policy. Hence, the volatile market reaction we had anticipated earlier seems less likely. The era of loose monetary policy conditions coming to an end will limit gold demand. With global interest rate yields trending higher the growing cost of carry will further convince speculators to rotate from gold into fixed income investments. We remain bearish on gold, expecting an extension of bearish trends to $1111 January 2016 low ($1165 should cap recovery bounce)
EUR/JPY - Buying Pressures Start To Fade. 
The Risk Today
EUR/USD remains below 1.0500. Hourly resistance can be found at 1.0480 (intraday high). Stronger resistance is given at 1.0670 (14/12/2016 high). Hourly support lies at 1.0367 (15/12/2016 low). Expected to further increase. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.
GBP/USD is trading below former uptrend channel. Hourly support is given at 1.2376 (15/12/2016 low). Stronger support can be found at 1.2302 (18/11/2016 low) while resistance lies at 1.2509 (16/12/2016 high). The technical structure suggests further weakness towards support at 1.2302. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY's bullish pressures are still very strong despite ongoing bearish retracement. The pair is approaching the 120.00 level. Hourly support can be found at 117.08 (intraday low). Stronger support lies at 114.74 (12/12/2016 low). The technical structure suggests further strengthening. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF has surged amid the Fed meeting towards 1.0344 (15/12/2016 high). Key support is given at the parity. Expected to further consolidate towards former resistance area around 1.0205. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
