ECB and BoJ Policy Outlook

Forex News and Events:

Europe

The incoming data, especially from Germany, has reinforced our expectations that the ECB will engage in QE. The euro area recovery has faltered with downside risk to the economy increasing. Meanwhile the EURO remains strong with dis-inflationary pressures building. We could expect to see a market busting €1trn QE program, divided into a 60/40 public/private sector asset split with the possibility of FX rates targeted later down the line. Expectations that action in June will help easy funding conditions further and exceptions for solid bids at the Sept and Dec TLTROs suggests that there will be no action at the Sept 4th meeting.

Japan

The logical leaps that the April VAT hike shifted consumers buying behaviors to such extremes has run into a bit of controversy. Clearly views are divergent on the economic effect of the consumption tax hike, which in turn is dividing expectations on monetary policy. The most recent dovish rhetoric by BoJ Koruda seems to indicate a commitment to pursue its aggressive monetary policy easing for "some time" to rid Japan of deflation. However, there is now consensus as to what form the additional measure might take, if they move forward and when. This puts the additional emphasis on this week’s economic indicators. Concerning to Abe, export volumes remains low despite the weaker JPY. Part of the issue stems from the shift in Japanese exports from consumer goods toward industrial materials. This makes Japanese exports to manufactures less sensitive to price changes than consumers, which are stimulated by lower prices.

Today's Key Issues (time in GMT):

2014-08-27T06:00:00 EUR Jul Import Price Index MoM, exp -0.10%, last 0.20%
2014-08-27T06:00:00 EUR Jul Import Price Index YoY, exp -1.40%, last -1.20%
2014-08-27T06:00:00 EUR Sep GfK Consumer Confidence, exp 8.9, last 9
2014-08-27T06:45:00 EUR Survey of Industrial Investment
2014-08-27T06:45:00 EUR Aug Own-Company Production Outlook, last 0
2014-08-27T06:45:00 EUR Aug Production Outlook Indicator, last -18, rev -19
2014-08-27T06:45:00 EUR Aug Manufacturing Confidence, exp 96, last 97
2014-08-27T06:45:00 EUR Aug Business Confidence, exp 93, last 93
2014-08-27T08:00:00 EUR Aug Consumer Confidence Index, exp 104, last 104.6
2014-08-27T11:00:00 USD 22.août MBA Mortgage Applications, last 1.40%
2014-08-27T16:00:00 EUR Jul Total Jobseekers, exp 3412.5k, last 3398.3k
2014-08-27T16:00:00 EUR Jul Jobseekers Net Change, exp 14.5, last 9.4

The Risk Today:

EURUSD made new lows yesterday, confirming persistent selling pressures. The technical structure is negative as long as prices remain below the hourly resistance at 1.3297 (22/08/2014 high). A first hourly resistance lies at 1.3220 (25/08/2014 low). A key support stands at 1.3105. In the longer term, EUR/USD is in a succession of lower highs and lower lows since May 2014. A long-term decline towards the strong support area between 1.2755 (09/07/2013 low) and 1.2662 (13/11/2012 low) is favoured. However, in the shorter term, monitor the key support at 1.3105 (06/09/2013 low) given the general oversold conditions. A key resistance lies at 1.3444 (28/07/2014 high).

GBPUSD made an intraday bullish reversal (hammer) on Monday. Coupled with the key support at 1.6460 and the oversold conditions, a short-term rebound is likely. An initial resistance lies at 1.6601 (21/08/2014 high). Other resistances can be found at 1.6679 (see also the declining trendline) and 1.6739. An hourly support lies at 1.6501 (25/08/2014 low). In the longer term, the break of the key support at 1.6693 (29/05/2014 low, see also the 200 day moving average) invalidates the positive outlook caused by the previous 4-year highs. However, the lack of medium-term bearish reversal pattern and the short-term oversold conditions do not call for an outright bearish view. A key support stands at 1.6460 (24/03/2014 low).

USDJPY has failed to hold above the key resistance at 104.13, suggesting a weakening short-term buying interest. A break of the hourly support at 103.50 (22/08/2014 low) would confirm a deterioration of the short-term technical structure. Another support lies at 102.91 (intraday low). A resistance now stands at 104.49 (25/08/2014 high). A long-term bullish bias is favoured as long as the key support 100.76 (04/02/2014 low) holds. The break to the upside out of the consolidation phase between 100.76 (04/02/2014 low) and 103.02 favours a resumption of the underlying bullish trend. Strong resistances can be found at 105.44 (02/01/2014 high) and 110.66 (15/08/2008 high).

USDCHF has broken the strong resistance at 0.9156. The short-term technical structure is positive as long as the hourly support at 0.9138 (26/08/2014 low) holds. Another support stands at 0.9104 (22/08/2014 low). From a longer term perspective, the recent technical improvements call for the end of the large corrective phase that started in July 2012. The long-term upside potential implied by the double-bottom formation is 0.9207. A key resistance stands at 0.9250 (07/11/2013 high).

Resistance and Support: