US in the spotlight, Swiss production and import prices still very low

Forex News and Events

Switzerland: Production & Import Prices (by Yann Quelenn)

The consequences of the abandoning of the Swiss Euro peg remain visible in Switzerland. Deflation is weighing down on the economy. Further evidence of this are today’s producer & import prices, which came in at -6.6% y/y versus -6.8% y/y in September. Growth will continue to be driven to the downside as lower importation prices bring up deflation. To add further fuel to the fire, the Swiss economy, by its own nature of being a safe haven, is deflationist.

Nevertheless, the EURCHF remains at a strong level, around 1.0800, but we believe that this level is not sustainable. Swiss companies are losing competitiveness. For the time being, the pair is mostly driven up by the uncertainties regarding the ECB QE program. Indeed, ECB President Draghi has declared that the central bank is ready to launch measures to boost the Eurozone's recovery as inflation will take longer to return to policymaker’s target. In other words, the money waterfall is set to increase and this will only strengthen the Swiss Franc. The SNB is on tenterhooks, closely monitoring the ECB’s next steps so it can strike into action. Needless to say that in the past five years, the Swiss Central Bank has a track record of acting aggressively. We remain bearish on the EURCHF.

US data takes center stage (by Peter Rosenstreich)

In the market’s mind a December Fed rate hike is a done deal. However, the timing and the interest rate path is still data dependent. Evidence that US consumers are participating in the current expansion is critical to the Fed’s monetary policy strategy. With the unemployment rate at 5.0% and oil prices at year lows, one would expect the domestic data to be meaningfully sturdier. Today retails sales will provide some clarity on the situation. Headline retail sales are expected to increase 0.3%, supported by strong auto sales, while core is forecasted to rise 0.4%, a four month high. A read in line with consensus would be proof that the US consumer is healthy and could withstand a 25bp hike. Interestingly, a stronger read could catch traders flatfooted. The universal expectations are that the Fed’s tightening path will be gradual. However, there are plenty of risks that US economic expansion, combined with loose monetary conditions could start heating up. A sudden steepening of the curve will have a strong positive effect on the USD. This week the monetary policy divergence theme was in full swing causing substantial volatility across assets class. Yesterday we heard policymaker’s rhetoric on both sides of the Atlantic (Draghi sounding dovish and Bullard lead the hawkish charge) and today we will get key economic data. We maintain our bearish on expectations that further evidence of divergence will drive EURUSD lower. Elsewhere in the US, Cleveland Fed President Mester (neutral) will speak and PPI as well as University of Michigan consumer sentiment will be released.

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USDJPY – Bearish Consolidation

The Risk Today

Yann Quelenn

EUR/USD is retracing around 1.0800. Hourly support lies at 1.0675 (10/11/2015 low). Hourly resistance can be found at 1.0897 (05/11/2015 high). The technical structure remains clearly negative. Stronger resistance stands at 1.1095 (28/10/2015 high). Expected consolidation of the pair. 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 is pausing after its continuous increase over the past few days. Hourly support can be found at 1.5027 (06/11/2015 low). Strong resistance can be found at 1.5529 (22/09/2015 high). Expected to show continued buying interest pressures. 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 is weakening but the pair remains in the uptrend channel. Hourly resistance lies at 123.60 (09/11/2015 high). Nonetheless the short-term technical structure favours a further rise. Strong support lies at 120.80 (22/10/2015 low). Expected further consolidation before rise of the pair 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 still holding above 1.0000, confirming buying interest. The technical structure still shows a bullish momentum despite signs of fading momentum. Hourly support is given at 0.9944 (06/11/2015 low). Expected to further consolidate. 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: