ZAR under pressure ahead of budget presentation

Forex News and Events

Event risk in Switzerland (by Peter Rosenstreich)

Most Swiss financial professional are watching the ECB and potential for more negative interest rates Europe to drive EURCHF lower. Then expectations for a SNB policy reaction (or even pre-emptive action). However, a referendum on February 28th containing two controversial propositions (along with lesser globally relevant issues on tax brackets for married people and a second road tunnel through the Alps) could have profound effects on the Swiss long-term economic outlook. The proposals deal with laws to expel foreign criminals and ban on “speculation” on food and agricultural products. The issue on expelling foreign criminals would have direct implication on EU relations (although less revolutionary with other EU nations already conducting similar policies due to refugee crisis) and international firms ability to recruit staff. Getting less pressure but potentially more damaging to domestic economy and business friendly reputation would be the ban on “speculative” commodity trading. Switzerland has become a global powerhouse in commodity trading, hosts over 500 trading companies (both physical and speculative trading). Successful passage would trigger a quick migration to safer host nations, as firms would be unwilling to managing the regulatory uncertainty. Swiss polling and therefore referendums are notoriously difficult to predict, increasing the uncertainty factor. Passage of either referendum would further damage a fragile domestic situation.

South Africa: budget presentation in focus

On the January 28th meeting the SARB took drastic action and surprised the market by raising interest rates by 0.50bp to 6.75%. The move was geared at halting the steady currency depreciation that assists raising inflation pressures. South Africa has been battling with a perfect storm of issues that have forces investors to abandon the African nation. South Africa had been a primary supplier of mining, agricultural and energy outputs that were heavily consumed by China. As China's demand dried up and commodity prices plummeted, the country fell into economic stagnation tattering on recession. In addition, a severe drought damaged the country’s vital commodity adding inflationary pressures. Domestic unemployment remains worriedly high and weighs on sentiment. While the fiscal position has deteriorated significantly. Although the situation has improved, with a pick-up in GDP growth and pressure generated form the Fed interest rate hike path, the situation remains critical. This week’s budget presentation will be examined for South Africa's fiscal outlook and government’s commitment. Rating agencies will be reviewing debt for potential downgrades unless the government indicates meaningful ways to plug short falls.

This morning the South African rand came under renewed downward pressure as commodity prices resume slide. From a technical standpoint, the bias in USD/ZAR remains on the downside for now as a break of the 15.75 area would be needed to validate a trend reversal.

Russia between inflation and recession (by Yann Quelenn)

The ruble keeps on suffering. The currency has strongly weakened against the greenback and is now trading around 76 ruble for one dollar. Today the Russian Consumer Price Index will be release. This data represents a major concern for the Central Bank of Russia as it does not leave much room for further easing despite a key rate around 11%. There is indeed a massive downside risk for the currency coupled with a major inflation risk. The country is definitely struggling with lingering low oil prices with the government adopting a budget based on oil prices at $50 a barrel. In addition 2015 growth rate fell at -3.7% y/y down from the slight rise of 0.6% in 2014.

As a result, the CBR is trying to stabilize the ruble by expanding its Foreign-Exchange reserves (including gold) and today, this amount for the period ending 19th of February will be disclosed. Russia’s Central Bank head, Elvira Nabiullina has already made it clear that one of its primary objectives is to increase these reserve holdings up to $500 billion. For the time being, holdings only amount to $382.4billion.

USD/CHF - Riding Short-Term Uptrend Channel.

The Risk Today

Yann Quelenn

EUR/USD is now pausing around 1.1000. The short-term technical structure still suggests a further bearish move. Hourly resistance lies at 1.1139 (19/02/2016 high) and hourly support is given at 1.0905 (03/02/2016 low). Expected to keep on declining. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD has broken hourly support at 1.4150 (29/01/2015 low) and 1.4081 (21/01/2015 low). The road is wide open to stronger support at 1.3657 (11/03/20009 low). Hourly resistance is given at 1.4168 (22/02/2016 high). The technical structure suggests further decline. The long-term technical pattern is negative and favours a further decline towards the key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY is pushing lower. The medium-term technical structure is clearly negative. Hourly support can be found at 111.64 (intraday low). Hourly resistance lies can be found at 113.39 (22/02/2016 high). Expected to further decline towards hourly support at 110.99 (11/02/2016 low). We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USD/CHF is riding the uptrend channel. Hourly resistance is given at 1.0003 (22/02/2016 high). Stronger resistance is given at 1.0074 (04/02/2016 high). Hourly support can be found at 0.9896 (23/02/2016 low). Stronger support is given at 0.9847 (16/02/2016 low). Expected to see further strengthening. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.

Resistance and Support: