Swiss data surprised to the downside

Forex News and Events

Switzerland manufacturing PMI below 50 (by Arnaud Masset)

Manufacturing sectors are contracting across the planet and Switzerland cannot any more be considered an exception. According to the latest data, Swiss purchasing mangers’ index surprised to the downside in September, printing at 49.5, less than median forecast of 51.8 and previous month read of 52.2. For the first time since March, the output (s.a.) contracted to 49.1 in September from 62.4 in August.

At the same time, August real retail sales contracted 0.3%m/m (-2.5% in nominal terms), compared to an upwardly revised increase of 0.1%m/m in the previous month, as volatile components such as food, beverage, tobacco and fuel continue to weigh on the index. When excluding fuel, retail sales grew 0.6% (-1.6% in nominal terms).

Despite the recent depreciation of the Swiss franc to EUR/CHF 1.10, the CHF is still widely seen as overvalued. It may limit the damage, to some extent, but the economy will continue to suffer on the long-term. In addition, the global weak economic outlook and highly uncertain environment maintain investors in a risk-off mode, preventing the Swiss franc to weaken further. The SNB has been of little help as even if the central bank remains active in the FX market, the size of its interventions (Sfr432mn per week on average in September) are not substantial enough to allow EUR/CHF to break definitely the 1.10 strong threshold. We expect EUR/CHF to remain below 1.10 as long as the market remained in risk-off mode.

Russia launches airstrikes (by Yann Quelenn)

U.S officials are very dubious about the true intentions behind the Russian airstrikes in Syria. Russia, on the other hand, is claiming that it is only targeting eight strategic positions of the Islamic State of Iraq and the Levant (ISIL). U.S. Defense secretary, Ash Carter, declared that Russia has targeted areas in which there are no ISIL fighters. Furthermore, the U.S is now concerned that Russia could be protecting Bachar el Assad’s regime by targeting Western-backed rebels. Indeed a statement was issued from Assad’s office asking Putin for the support. Furthermore, in a recent speech, Russia’s president stated that “only President Assad’s Armed Forces and Kurd Militia are truly fighting the Islamic state” while 2009 Peace Nobel Prize winner Barack Obama keeps repeating the message that democracy makes countries stronger. The current situation in the Middle East is increasingly volatile and unstable and US-Russia’s contradictory strategies will do nothing to help resolve the issue. Russia is also struggling with economic turmoil, in particular due to its high inflation and weak commodity prices. Recent discussions at the UN summit spelled good news for the country with fears of additional economic sanctions fading away. Unfortunately, the Syria question is likely to hinder any progress.

EURCHF - Downside Momentum Continues

The Risk Today

Yann Quelenn

EUR/USD has broken short-term symmetrical triangle and is now approaching support at 1.1087 (03/09/2015 low). Stronger support lies at 1.1017 (18/08/2015 low). Hourly resistance can be found at 1.1330 (21/09/2015 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 remain in a downside momentum.

GBP/USD has broken hourly support at 1.5136 (25/09/2015 low) and is heading toward the 61.8% Fibonacci retracement. Stronger support can be found at 1.4960 (23/04/2015 low). Hourly resistance can be found at 1.5659 (27/08/2015 high). In the longer term, the technical structure looks like a recovery. Strong support is given by the long-term rising trend-line. A key support can be found at 1.4566 (13/04/2015 low).

USD/JPY is moving sideways. The pair is still moving 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 is still holding below resistance at 0.9844 (25/09/2015 low). The technical structure still shows an upside momentum. We remain bullish in the medium-term. 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).

Resistance and Support: