Swiss trade surplus widens, Watch exports slump

Forex News and Events

Disappointing ZEW and record trade surplus indicates importance of weak CHF

Data released today indicated that Swiss trade surplus widened to 4.1bn from revised higher 3.25bn. On an annual basis, both exports and imports declined by -1.5% and -5.3%, respectively in October. Swiss watch industry exports fell sharply by -12.3% percent on demand weakness in Asia. The slump in export continued to be driven by strength of CHF against the Euro. While lack of import suggests deceleration of the Swiss economy endures. Yesterday, Switzerland November ZEW investor’s confidence fell to 0.0 against 18.3. The exact reading of zero indicates that financial analysts surveyed “expect to see neither an improvement, nor deterioration in Swiss economic activity over the next six months”. In our view the indecisiveness is due to the uncertainty around the EURCHF. The CHF is increasingly correlated with the economic conditions of Switzerland with recent improvement directly correlated with recovery of EURCHF (CHF weakening). The prospect of further ECB easing, which is expected to include lowering interest rates deeper into negative territory, has caused appreciation in CHF against the euro. Markets have heard plenty of chatter from SNB policy makers over the defense of the CHF, however, it is uncertain what exact tools will be used and how effective they will actually be. In Switzerland, the market’s confidence in the two primary defensive mechanisms in negative interest rate and direct FX intervention are precarious. Negative interest rates have had a limited effect on driving outflows, while punishing private investors. Yet, massive expansion of the SNB balance sheet indicates that sustained activity is improbable. It’s true that Swiss corporates didn’t collapse when the SNB removed the EURCHF “floor” but nevertheless, there has been steady erosion in economic activity. The SNB must weaken the CHF against its primary trading partner, although markets are still unconvinced of the central bank’s strategy.

Fed Meeting minutes for Oct. 28

Usually three weeks after each FOMC, the Fed minutes are largely awaited. It seems that Fed members believe that US economic conditions have expanded at a decent pace in recent months. A December lift-off is clearly a possibility. However, the Fed remains concerned about the accomplishment of its dual mandate. Inflation is holding way below the 2% target and the pace of job gains has slowed. In addition, we believe that the Fed is almost obliged to symbolically increase its rate and end the zero interest-rate policy for credibility reasons. Janet Yellen in particular, must now show that the situation is in control.

Yet, the Fed’s committee, which removed the word “patience” in its (already 8 months ago) March statement, ironically appear to be very calm. We believe that the next NFP figure will be decisive factor in whether or not interest rates will go up. The Fed also added that they would assess “a range of labour market indicators over the period to confirm further improvement in the job market”. At some point, being so afraid to raise interest rates by a quarter point after 3 massive quantitative easing sounds contradictory.

The Federal Reserve also remains focused on the impact of lingering low commodity prices. There is still a non-negligible risk that downward pressures on inflation due to a strong dollar will continue. We remain bearish on the EURUSD.”

The Risk Today

Peter Rosenstreich

EURUSD is monitoring the upper bound of the downtrend channel. Yet, the technical structure is clearly negative. The pair lies above 1.0600. Hourly support is given at 1.0617 (18/11/2015). Hourly resistance can be found at 1.0897 (05/11/2015 high). Stronger resistance stands at 1.1095 (28/10/2015 high). Expected further 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).

GBPUSD is increasing. Hourly support can be found at 1.5027 (06/11/2015 low). Hourly resistance at 1.5264 (13/11/2015 high) has been broken. Stronger resistance can be found at 1.5529 (22/09/2015 high). Expected to show continued decline as the mid-term lower highs suggest a declining trend. 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.

USDJPY has finally broken resistance at 123.60 (09/11/2015 high). The short-term technical structure still favours a further rise. Strong support lies at 120.80 (22/10/2015 low). Expected consolidation before entering into another upside move.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).

USDCHF is increasing confirming persistent buying interest. The pair is riding a uptrend channel. Hourly support is given at 0.9944 (06/11/2015 low) and resistance at 1.0171 (intraday high) has been broken. New hourly support lies at 1.0221 (intraday high). Expected to show continued strengthening. 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: