The Big Picture

Switzerland should be able to withstand the SNB decision Switzerland’s Finance minister said in an interview to a local newspaper that the economy can cope with the removal of the EUR/CHF minimum exchange rate. The minister also added that if the exchange rate stays above 1.10, companies should be able to adjust as they are better placed than in 2011 when the floor was introduced. But given the downward pressure on euro as the ECB gears up to introduce a QE program, the EUR/CHF rate is unlikely to move higher to that level, in our view.

Greece entered the final week for national elections, with Prime Minister Antonis Samaras New Democracy political party still behind the opposition Syriza Party. Even though recent polls, including polls published this weekend, show a clear victory by Syriza, it seems not enough to secure a majority in the 300-seat parliament. With an extension of Greece’s aid program due to expire at the end of February, the failure to form a government could add to the already increased tensions with negative outcomes for the euro.

Today’s highlights: On Monday, we have a relatively light calendar day. During the European time, EU foreign ministers hold meeting to discuss policy against Russia and terrorist attack in France. If they decide to maintain the current sanctions or impose new ones, this could hurt RUB further.

As for the indicators, Eurozone’s current account is due out.

As for the rest of the week, many important events and indicators are on the schedule: On Thursday, we have the highlight of the week, the ECB monetary policy meeting. With Eurozone in deflation, expectations for the Bank to introduce a large scale QE program have increased dramatically. If the Swiss National Bank abandoned the EUR/CHF floor on fears that it won’t be able to support it, then ECB officials must be preparing something explosive. Expectations are so high for the ECB to take drastic action that even the rumored EUR 500 bn size QE program might disappoint the market, in our view. Investors may conclude that a cap of any size may be a disappointment. A plan that will probably take shape before the Thursday meeting, suggests national central banks in the Eurozone to buy their own country’s bonds, this would limit the contagion effect. The total bond-buying program would be limited to 20% or 25% of a country’s outstanding debt. Bear in mind that Draghi is willing to do “whatever it takes” to protect the Eurozone, so a larger-than-expected QE program could depress EUR even further, in our view.

On Tuesday, we have the German ZEW survey for January. Both indices are forecast to have risen. Even though this could be the third consecutive rise in the indices, it may not be enough to reverse the negative sentiment towards EUR.

On Wednesday, In the UK, we get the minutes from the latest BoE meeting. Once again the focus will be on the number and the names of the dissenters. Kristin Forbes, who is one of the Monetary Policy Committee's new members, is viewed to be on the “hawkish” end of the scale given her views on slack in the labor market. Therefore, we wouldn’t be surprised if she joins the other two MPC members in voting for a rate hike anytime soon. As for the indicators, the UK unemployment rate is expected to have declined to 5.9% in November from 6.0%, suggesting less slack in the labor market. Average weekly earnings are anticipated to accelerate, adding to the positive employment report. In Canada, the Bank of Canada is expected to keep its benchmark interest rate unchanged. Expectations for the CPI rate to decline on Friday along with the falling oil prices, are likely to keep BoC on hold for longer than it would otherwise, leaving CAD vulnerable.

Finally on Friday, as mentioned above, Canada’s CPI for December is expected to decelerate. This could add further selling pressure on CAD.

The Market

EUR/USD hits support below 1.1500

EUR/USD continued sliding on Friday and traded below 1.1500 for a while. However, the rate triggered some buy orders near 1.1460 (S1) and rebounded back above 1.1500. The bias remains to the downside and thus I would expect a move below 1.1460 (S1) to see scope for extensions towards the 1.1370 (S2) hurdle, defined by the low of the 7th of November 2003. Our daily oscillators detect accelerating bearish momentum and amplify the case for further declines. The 14-day RSI stays within its oversold territory and is pointing down, while the MACD stands below both its zero and signal lines, pointing south as well. As for the overall trend, on the daily chart, the price structure still suggests a downtrend. The pair is forming lower peaks and lower troughs below both the 50- and the 200-day moving averages.

• Support: 1.1460 (S1), 1.1370 (S2), 1.1225(S3)

• Resistance: 1.1650 (R1), 1.1730 (R2), 1.1860 (R3)

GBP/USD declines after finding resistance near 1.5275

GBP/USD moved lower on Friday after finding resistance near the 1.5275 (R1) hurdle but the decline was halted by the 1.5075 (S1) line, a support defined by Tuesday’s low. The RSI moved below its 50 line, while the MACD fell below its trigger and obtained a negative sign, indicating bearish momentum. Although these short-term studies support further declines, I would prefer to sit on the sidelines for now as far as the near-term picture is concerned. The reason is because our daily oscillators detect a slowdown in the momentum of the longer-term downtrend. The 14-day RSI exited its oversold field, while the MACD has bottomed and could move above its trigger soon. Taking those technical signs into account and given the trend’s proximity to the psychological line of 1.5000 (S3), I would prefer to wait for a clear close below 1.5000 (S3), before trusting again the overall down path.

• Support: 1.5075 (S1), 1.5030 (S2), 1.5000 (S3)

• Resistance: 1.5275 (R1), 1.5420 (R2), 1.5500 (R3)

EUR/JPY reaches the 135.00 zone

EUR/JPY fell sharply breaking below the support (turned into resistance) line of 137.00 (R1) to reach the key zone of 135.00 (S1). The short-term bias is to the downside and as a result I would expect a move below the 135.00 (S1) area to target the low of the 16th of October, at 134.15 (S2). On the daily chart, the dip below 137.00 (R1) also signaled a break below the 2nd price objective of the head and shoulders pattern completed back on the 30th of December. This confirms the negative medium-term picture and magnifies the case for further declines in the close future. Our daily momentum studies indicate accelerating negative momentum and support the notion. The 14-day RSI stays within its oversold zone pointing down, while the daily MACD moved deeper into its negative territory.

• Support: 135.00 (S1), 134.15 (S2), 133.00 (S3)

• Resistance: 137.00 (R1), 139.00 (R2), 140.00 (R3)

Gold breaks above 1270

Gold continued its rally on Friday breaking above the resistance hurdle of 1270 (S1). Although this move increases the possibilities for further rise towards the round figure of 1300 (R1), I would stay careful of a possible pullback before the longs seize control again. My concerns are derived from our momentum signs. The RSI turned down again and could exit its overbought zone any time soon, while the MACD shows signs that it could start topping. On the daily chart, the metal edged higher after completing an inverted head and shoulders formation on the 12th of January, and this holds the picture positive.

• Support: 1270 (S1), 1255 (S2), 1238 (S3)

• Resistance: 1300 (R1), 1320 (R2), 1340 (R3)

WTI rebounds from 45.90

WTI moved higher after hitting support at 45.90 (S3). On Monday, during the early European morning, WTI is trading marginally below the resistance hurdle of 48.80 (R1). A move above that line could challenge again the key barrier of 49.65 (R2), marked by the highs of the 8th and 9th of January. On the daily chart, WTI is still printing lower peaks and lower troughs below both the 50- and the 200-day moving averages, and this keeps the overall downtrend intact. However, the 14-day RSI exited its oversold field and is pointing somewhat up, while the MACD, although negative, moved above its trigger line. There is also positive divergence between both the oscillators and the price action. As a result, I would expect the upside corrective phase to continue.

• Support: 47.90 (S1), 46.50 (S2), 45.90 (S3)

• Resistance: 48.80 (R1), 49.65 (R2), 51.25 (R3)

BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS

MARKETS SUMMARY