Calm in global markets support rate hike in US

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Shinzo Abe targets corporate taxes

“Japan Prime Minister Shinzo Abe is still looking at other ways to stimulate the Japanese economy. The Qualitative and Quantitative Easing still has to prove to be efficient yet. Inflation and growth remains subdued. The economy contracted in Q2 at 1.2% y/y and the CPI annualized CPI is stuck at 0%. Hence, Abe is now focusing on the fiscal arrow of his Abenomics which results already appear as very decisive for the Japan’s future. He is repeating that the he will push forward to reduce more than planned the corporate tax rate below 30% in order to boost domestic investment. This would put the Japan’s corporate tax at a level comparable to other countries. In the same time, it should also be accompanied by a consumption tax hike, the first one since April 2014.

We are still closely watching any date from Japan and its current Balance of Payment current account balance have hit a surplus of yen 1’468bn ($11.9bn) in September 2015 for 15 consecutive months despite it narrowed in August. The country is still running a surplus, mostly due to the decrease in commodity prices.

The USDJPY is driven by increasing U.S. rate hike expectations and by the global outlook uncertainties. The greenback should monitor the 124 yen level.” Yann Quelenn – Market Analyst

Calm in global markets support rate hike in US

In further backing for a Fed “lift-off” in December, non-voting member and known dove, President of the Boston Fed, Eric Rosengren, has provided his verbal support. Rosengren indicated that strong US economic data, combined with increased signs of risk taking make it appropriate to raise interest rates in December. He suggested that domestic demand has returned, citing the stronger than expected October US payroll report and retails sales, but perhaps most interesting were his comments that global events will have a lesser impact on the fed's policy making decision. Rosengren stated: “that the US was little affected by the problems in emerging markets, or by the resulting financial market turbulence.” In our view the introduction of a third mandate was crucial in September's decision not to raise rates. With FX volatility declining after a sharp pop in early November and global equity indices on a firm footing, the risk of a “taper tantrum” looks unlikely. This is especially true when we consider that a December 25bp rate hike is already broadly baked into prices. With other central banks in China, Europe, Scandinavia, and Japan all sustaining loose monetary conditions, risk taking should be well supported, allowing the Fed to hike without a backlash from the markets.

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The Risk Today

Peter Rosenstreich

EUR/USD is now moving sideways. Hourly resistance lies at 1.0897 (05/11/2015 high) and hourly support can be found at 1.0707 (06/11/2015 low). Stronger resistance stands at 1.1095 (28/10/2015 high. Expected retracement of the pair above 1.0800. 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 bounced back and is now consolidating. Hourly support can be found at 1.5026 (06/11/2015 low). Hourly resistance stands at 1.5219 (05/11/2015 high). Expected further consolidation. The long-term technical pattern is negative and favours a further decline towards the key support at 1.5089 , as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY continues to improve. Hourly resistance lies at 123.60 (09/11/2015 high). The short-term technical structure favours a further rise. Strong support lies at 120.80 (22/10/2015 low). 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 consolidating above 1.0000, confirming an increasing buying interest. The technical structure is still looking for further bullish momentum. Hourly support is given at 0.9944 (06/11/2015 low). Expected to show continued increase. 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: