Swiss CPI surprises slightly to the upside

Forex News and Events

Swiss CPI surprises to the upside (by Arnaud Masset)

In Switzerland, CPI contracted 1.4% on a year-over-year basis, as the effect of the peg removal endures. On a month-over-month basis, inflation level rose 0.1%, beating market expectations of a flat reading. This improvement came against the backdrop of a weaker Swiss franc which is making foreign goods more expensive for Swiss people - the price of foreign goods increased by 0.8%m/m. When looking at the core gauge, inflation rose 0.2%m/m, while on a year-over-year basis prices contracted 0.8%.

In spite of this slight improvement, we do not believe the underlying story has changed as the strong Swiss franc continues to weigh on the Swiss economic and the inflationary outlook and it is about to get worse. The ECB’s stated intention to support further the EU economy is certainly keeping SNB’s officials awake at night especially given the limited number of weapons in their arsenal. What are the possible ways in which the SNB can react? Let’s do a quick review. We can almost certainly rule out a potentially massive FX intervention as the central bank’s balance is already at stratospheric levels. Secondly, we don’t believe it’s likely that there will be a tightening of the exemption rule since it would directly impact the saving accounts of Swiss people. So what could happen? From our standpoint, the SNB will most likely respond by pushing rates further into negative territory and we believe that Mr. Jordan could combine such a measure with a raise of the exemption threshold. EUR/CHF is recovering from yesterday’s sharp sell-off and is trading again above the 1.08 level. On the medium-term, EUR/CHF remains in its declining channel, while on the short-term, we wouldn’t be surprised to see the pair back around 1.0870.

Punch bowl in jeopardy (by Peter Rosenstreich)

Fed Chair Janet Yellen in her testimony to House Financial Services Committee stated that December is a “live possibility” as the US economy continues on a firm footing. Yellen stated “the US economy as performing well,” as “domestic spending has been growing at a solid pace.” The decision remains data dependent, in Yellen view, but should the data continue to indicate growth and stronger prices a December rate hike would be appropriate. In almost sensing the need for supporting evidence, nonmanufacturing ISM and ADP indicated that the US economic continues to perform well. The ISM nonmanufacturing index increased to 59.1 from 56.9 in October. ADP payrolls printed at 182k suggesting Fridays headline payrolls should come in around 185k. Supported by the comments and data, USD and short-end of the US yields curved rallied in response to increase speculation that the Fed will increase interest rates by 25bp in December. Interestingly while Yellen’s comments have a negative effect on the US equity markets (S&P 500 fell 0.4%), a mixed Asia basically shrugged off the indication of an impending rate rise (Shanghai composite rose 1.83%). With a full lineup of Fed speakers today, NY Fed President Dudley, Vice Chair Fischer, Fed Governor Tarullo and Atlanta Fed President Lockhart we should expect significant volatility in US assets. We currently anticipate the first Fed rate increase to occur in March 2016 and therefore view the current bullish rally in USD to be overdone (ie – expect short term bearish correction).

USDJPY - Resistance at 121.75 holds

The Risk Today

Peter Rosenstreich

EUR/USD has broken the support at 1.0900 reversing completely the recent short-term recovery bounce. Hourly supports can now be found at 1.0879 (04/08/2015) and 1.0812 (21/07/2015). Hourly resistances stand at 1.0883 (intraday high) and 1.0968 (04/11/2015). 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 remained weak after its failure to challenge resistance at 1.5509. However, a break of the support at 1.5364 (30/10/2015 low) is needed to suggest a deeper corrective phase. Hourly resistances stand at 1.504 (intraday high) and1.5529 (18/09/2015 high). Another support lies at 1.5202 (06/06/2014 high). 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 continues to rise within its range after failing to challenging its recent lows at 120.80 (28/10/2015 low). Lack of technical drivers indicate that range trading should continue. Strong resistance is given at 121.75 (28/08/2015 high). Expected to show continued increase before targeting again resistance at 121.75. 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 has broken the resistance at 0.9957 (28/10/2015 range high and long term decliing trendline), confirming an increasing buying interest. As long as the support at 0.9808 (27/10/2015 low) holds, the technical structure looks to further bullish momentum. Additional hourly support is given at 0.9476 (15/10/2015 low). In the long-term, the pair has broken resistance at 0.9448 and key resistance at 0.9957 suggesting further uptrend. Key support can be found 0.8986 (30/01/2015 low). As long as these levels hold, a long term bullish bias is favoured.

Resistance and Support: