ADP report in focus, investors remain nervous

Forex News and Events

Investors’ nerves severely tested at the start of 2016 (by Peter Rosenstreich)

North Korea’s announcement of a hydrogen bomb test has done little to calm already jittery nerves. The announcement was supported by media outlets reporting a “man-made” earthquake in the area that North Korea generally uses to test their nuclear capabilities. This concerning news follows directly on the heels of the escalations of tensions between Saudi Arabia and Iran. Given the weak economic growth data emulating for emerging markets recently investors had little appetite to wait around. Asia regional equity indices were in the red with the Hang Seng and Nikkei down roughly -1.00%. Interestingly the Shanghai composite was up 2.25%, despite Caixin China Services PMI December disappointing at 50.2 from 51.2. Intervention by the Chinese government, in this case, extension of ban on major shareholders selling shares in listed firm according to Shanghai Securities News, has provided temporary support. In the FX space safe haven flows have benefited the JPY and USD (yet little demand for CHF). Weak Chinese data, strong USDCNY and low commodity prices indicate that AUDUSD should be traded short. IMM data indicates that markets remain net long suggesting sensitivity to additional negative Australian news. AUDUSD traded below trend line supports at .7120 indicates further weakness to 0.7015. We remain on a risk-off positioning on mounting geopolitical risks and teetering overvalued US equity market, which looks vulnerable for a potential correction.

First jobs data of the year, FOMC minutes (by Yann Quelenn)

ADP Employment Change will come in today. Expectations are for a December employment change of 217k vs. 198k in June. Despite spectacular misses over the last few years, it has been often a good indicator of US non-farm payrolls which will be released this Friday.

Later today, the much-anticipated FOMC minutes from December’s meeting will be released. Markets are now focused on any hints that would suggest subsequent rate hikes. Even if historically Fed minutes are very pragmatic and do not typically yield big surprises we will be assessing the likelihood of interest rates remaining at the current level at the next meeting in March.

Yet, Fed issues won’t change in 2016, inflation (or rather the lack of) will remain the key topic. There is, however, one sure bet, the central bank will be optimistic about the labour market despite, for example, very poor December initial jobless claims which increased by 7% m/m.

As a result, we maintain our view that rates have been increased only with the intention of making the dollar attractive to investors. We do not believe that the underlying fundamentals of the US economy are sufficient to trigger another rate hike in March.

Crude Oil - Back to 35.00

The Risk Today

Yann Quelenn

EUR/USD is heading lower and is now trading below 1.0800. The road is now wide open to hourly support at 1.0524 (03/12/2015 low). Hourly resistance may be found at 1.1096 (28/10/2015 low). Expected to further decline. 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 heading lower toward support at 1.4566 (05/04/2015 low). Hourly resistance is given at 1.5242 (13/12/2015 high). Stronger resistance can be found at 1.5336 (19/11/2015 high). Expected to show continued weakness. The long-term technical pattern is negative and favours a further decline towards the key support at 1.4231 (20/05/2010 low), 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 selling pressure continues. Short-term technical structure suggests a stronger downside momentum. Hourly support can be found at 118.07 (15/10/2015 low). Hourly resistance lies at 123.76(18/11/2015 high). Expected to further decline towards hourly support at 118.07. 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's uptrend momentum keeps going. Support is located at 0.9876 (14/12/2015 low). Hourly resistance can be found at 1.0125 (05/01/2015 high). The short-term technical structure also shows an upside move. Expected to further 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: