ECB meeting and US data in focus

Forex News and Events

US: Housing data (by Yann Quelenn)

The Fed is looking for more supportive economic data to decide when a further rate hike will happen. Officially Fed members’ attention remains focused on the jobs market. Hawkish members claim that employment conditions would fuel inflation, while doves support the idea of a reserve army that would flow back in the job markets as soon as the situation improves. In any case, it is clear that there is growing dissension surrounding jobs market statistics, which are been said to not accurately depict the current situation. Therefore, it is important to get additional evidence that would support a monetary change. From that standpoint, we think that housing market data is an important tool to more accurately appraise the real situation in the U.S.

Low interest rates and steady unemployment should provide the necessary traction to underpin the housing market. Last month, existing home sales fell 4.8% against the backdrop of constant jobs creation and mixed economic conditions. The main issue is that the era of zero interest-rate is not over and this adds upside pressures to house prices. We believe that today’s existing home sales will print in lower than consensus, which is expected to be released at 1.5% m/m. The EURUSD is set to gain on this data release. Events outside of the U.S won’t be the only drivers for broad USD trend. The economic situation in the U.S is largely overestimated and the Fed will soon have a hard time justifying the inefficiency of the three quantitative easing programmes they have launched over the past seven years.

Expect a dovish Draghi (by Peter Rosenstreich)

Ranges in G10 FX continue to consolidate ahead of the ECB policy meeting today. We suspect that the EURUSD is trading on a discount based on markets overbaked expectations for policy adjustments (therefor restricting EURUSD upside). At this meeting, we should get a dovish Draghi, based on new indications that EU inflation is decelerating, who is leaning towards more monetary policy stimulus. However, in our view the ECB will stop-short of actually pulling the trigger. Plus, we don’t think that Draghi will even signal additional accommodation in December. The net result should be a decent EURUSD rally. Our expectation is for an early 2016 signal and action. With inflation near zero, economic growth worries and external risk from a decelerating China there seems enough support for extending QE. Markets have speculated on the composition of the stimulus. Most participants expect an increase to the length of the QE program, additional monthly purchase amount and expanded eligible securities available for purchase will be the likely first action. What is perhaps more controversial and EUR negative is the potential use of further negative rates. After Draghi dropped the deposit rate to -0.2% he seemed to suggest that this was lowest rates could go (lowest bound). Yet, given the experience of the Danish National Bank, Riksbank and SNB its clear interest rates can be set lower. Recent comments suggest that ECB members are willing to consider this nuclear option. An expanding asset purchase program will have limited effect on the Euro however deeper negative rates will put pressure on the single currency. Interestingly, it’s the SNB which is watching this nervously. Tightening rate differentials will send capital flows back into Switzerland further strengthening the overvalued CHF. The fragile Swiss economy is not in a position to handle renewed and extended CHF strength. The question in our mind is will the SNB react with a preemptive move to defend the CHF.

EURCHF - Short-Term Bullish

The Risk Today

Yann Quelenn

EUR/USD is still in a mid-term bullish momentum. Hourly resistance for a short-term bounce is given at 1.1495 (15/10/2015 low). Nonetheless, on the short term the pair is heading downside. Other resistance can be found at 1.1561 (26/08/2015 low). Support lies at 1.1087 (03/09/2015 low). Expected consolidation before entering into an upside move. Since March 2015, the pair is improving. Key supports can be found at 1.0458 (16/03/2015 low) and 1.0000 (psychological support). The technical structure favours an eventual break higher. Strong resistance is given at 1.1871(12/01/2015)

GBP/USD holds above the 38.2% Fibonacci retracement. Other support lies at 1.5202 (13/10/2015 low) and hourly resistance can be found at 1.5529 (18/09/2015 high). A long as prices remain in this range, there is no clear mid-term momentum. Expected momentum towards resistance at 1.5529 In the longer term, the technical structure looks like a recovery as long as support given at 1.5089 stands. A full retracement of the 2013-2014 rise is expected.

USD/JPY lacks of momentum. The pair has broken the higher bound implied by the downside channel but has failed to push higher. Hourly support can be found at 118.07 (15/10/2015 low). Strong resistance is given 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 116.18 (24/08/2015 low).

USD/CHF is pushing higher in order to break through 0.9600. Other resistance can be found at 0.9740 (07/10/20150 low). Hourly support is given at 0.9476 (15/10/2015 low). Expected to show continued upside move. 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: