US jobs in focus, ECB ready to expand QE

Forex News and Events

US non-farm in the spotlight (by Arnaud Masset)

The US non-farm payrolls will be the key event today and will even receive more attention than usual as it will be the last major report, besides the CPI report due on September 16, before the widely anticipated September FOMC meeting. The Committee wants to see higher inflation pressure before raising rates and they are therefore focus on employment and wage growth, mostly. Even though ADP report (released on Wednesday) has historically been a poor predictor of NFPs, we expect a decent NFP report for August or even perhaps lower than median forecast of 217k.

One thing is almost certain: a strong report will send the dollar to the sky as traders will re-price a September rate hike while a lower read will have moderate effect now that the ECB has left the door wide open for further stimulus. Overall, we do not believe the Fed will raise rate in September and even a lift-off before 2016 is not guaranteed anymore. This morning’s market-implied probability of September lift-off is around 30% and around 55% for December.

Draghi is willing to expand QE (by Yann Quelenn)

Yesterday, the European Central Bank has maintained unchanged its main interest rate at 0.05%. At the following conference, ECB president Mario Draghi mentioned that new risks have emerged as lower commodity prices and a stronger euro. Hence, growth and inflation forecasts have been revised down or the next two years. Indeed, the Eurozone growth is forecast to reach 1.4% in 2015 down from 1.5% and in 2016, it is expected to reach 1.7%, lowered from 1.9%. He also added that the inflation could turn negative in the coming months. In other words, the Eurozone may enter a deflation period. As a result, the EUR-Complex has fallen yesterday and the euros is now trading around 1.1140 dollar.

We also consider that the most important information given at this conference was the possible extension of the ECB bond-buying programme. It is now obvious that the Quantitative Easing is seen as the ultimate tool to return to the path of recovery and sustainable growth. Nonetheless, either in the United States or in Japan, where this monetary policy has been widely used, it appears that the results are still unclear. The only positive effect is to maintain equities at the high level. Yesterday, equity markets welcomed the possible QE extension. The DAX index closed at 1.51%.

Swiss inflation remains negative (by Peter Rosenstreich)

Swiss inflation fell deeper into negative territory fueling stronger concerns over the persistent threat of deflation. The Swiss Federal Statistics Office reported consumer price inflation declined by -1.4% from -1.3% y/y and slight improvement in the monthly number -0.2% from -0.6%. However, the marginal improvement in the monthly read will provide little respite for the SNB. August consumer prices show weakness in all major categories with exception of Food and non-alcoholic beverages. Improvement in GDP growth q/q, PMI manufacturing and KoF leading indicator suggests that pass-through from the strong CHF could be fading. Yet, weakness on the consumer side and exports indicated the economic erosion is far from complete. Renewed weakness in the CHF after a spell of strengthen due to safe-haven buying, will be of some comfort to the SNB. As well as the overall negative sentiment. However rather than just leave the CHF fate to the markets, SNB President Jordan reiterated that the SNB is primed to intervene in FX markets if necessary and cautioned that the deposit rate could be cut further if required (currently -0.75%). We remain bearish on the CHF and suspect the dovish stance by the SNB will encourage traders to continue to use the currency to fund carry trades. EURCHF was eerily stably during the recent period of risk aversion indicating the trend is skewed to the upside. We anticipate EURCHF to clear 1.100 by years end.

GBPUSD - Approaching Support At 1.5171

The Risk Today

Yann Quelenn

EUR/USD has broken hourly support at 1.1236 (27/08/2015 low). Hourly resistance is given at 1.1332 (01/09/2015 high) and stronger resistance lies at 1.1714 (24/08/2015 high).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 targeting hourly support at 1.5171 (01/06/2015 low). Hourly resistance is given at 1.5930 (18/06/2015 high). The 50% Fibonacci retracement at 1.5248 has been broken as expected. We remain bearish on the pair.In the longer term, the technical structure lookslike a recovery bottom whose maximum upsidepotential is given by the strong resistance at1.6189 (Fibo 61% entrancement).

USD/JPY is still holding below the 200-day moving average. The volatility has been weak for the last three days. Hourly support is given at 116.18 (24/08/2015 low). Stronger support can be found at 115.57 (10/11/2014 low).A long-term bullish bias is favored as long asthe strong support at 115.57 (16/12/2014 low)holds. A gradual rise towards the majorresistance at 135.15 (01/02/2002 high) is favored.A key support can be found at 118.18(16/02/2015 low).

USD/CHF is pushing upward. Hourly resistance is located at 0.9799 (17/08/2015 high) has been broken. Hourly support is given at 0.9259 (24/08/2015 low). On the very short-term term, the pair is setting higher highs.In the long-term, the pair has broken resistanceat 0.9448 suggesting the end of the downtrend.This reinstates the bullish trend. Key support canbe found 0.8986 (30/01/2015 low).

Resistance and Support: