China kick-starts the week, SNB deposits rise 1.5%

Market Brief

The Chinese equities kick-started the week; HSI rallied to 23,936 , Shanghai’s Composite extended gains to three year highs following PBoC’s 25 bps cut (to 2.75%) in 1-year deposit rate and 40 bps cut (to 5.6%) in 1-year lending rate after the Asian close on Friday. USD/CNY broke the Sep-Nov downtrend channel top, rallied to 6.1378 for the first time since October 8th. The measures aim to lower corporate funding costs and to boost the economic recovery. PBoC cuts should also cure the liquidity squeezes experienced last week. We expect consolidation above 6.1280/6.1348 (50-dma/the daily Ichimoku cloud base) and see deeper upside correction.

AUD, NZD and EM currencies were better bid on Chinese news. AUD/USD surged to 0.8723 on Friday, the momentum indicators gained some positive traction, yet not enough to clear resistance at 21-dma (0.8705). More offers are eyed pre-0.8796 (Nov high).

EUR/USD opened downbeat as Asian traders adjusted positions to Friday’s dovish Draghi, the pair tested November lows (1.2358) at the opening. ECB said the ABS purchases started last Friday. At his speech in European Banking Congress on Nov 21st, ECB President Draghi said to consider broader asset purchases if the current program remains inefficient. It looks like ECB is openly preparing field for a proper QE. The Spanish 10y yields fell below 2% for the first time, Italian and French 10-year yields also advanced to record lows. The sentiment in EUR turns negative, EUR/USD should soon step out of bullish correction zone, 1.2350/60 support is to be cleared. EUR/GBP tumbled down to 100-dma (0.79193), the bull momentum took a serious hit. EUR/GBP tests the 30-day mid-Bollinger band (0.79041) on the downside. We see further room on the downside. Next resistance is eyed at 50-dma (0.78848).

In Switzerland, the average sight deposits increased by approximately 1.5% (from 315.7 bn to 320.7bn) last week, supportive of our doubts on some SNB activity in the market to temper the recent CHF appreciation. EUR/CHF opens the week at 1.20167/1.20313 range. We are heading into a critical week in Switzerland. On November 30th, Swiss people will decide whether the SNB should increase its gold holdings to minimum 20% of its reserves, unsellable and stocked in Switzerland. We stand ready for more SNB intervention, should the pressures on 1.20 floor persist.

Released in Canada on Friday, the headline CPI accelerated to 2.4% on year to October, the core CPI surged to 2.3%, leaving the market expectations far behind (2.1% exp. on both). The overheating consumer prices is an important barrier to BoC’s neutral stance. USD/CAD tumbled down to 1.1192 post-CPI, EUR/CAD broke below the key support of 1.40120 (year low) and traded below 1.40 for the first time since November 2013. The negative breakdown should add more momentum based on BoC/ECB divergence. Next support is eyed at 1.38577 (Fibonacci 50% on 2012-2014 rally).

We have a light economic calendar today: German November IFO Business Climate, Assessment and Expectations, Chicago Fed October National Activity Index, Dallas Fed November Manufacturing Activity and US November (prelim) Services & Composite PMI.