China fears mount but Europe recovers

Forex News and Events

Regardless of the strong US payroll data, China’s equity markets continued to disperse worries both from a global demand stand and policy maker’s standpoint. However, we are already seeing European stock recovery suggesting that correction should be limited to China. That said, global concerns continue to be the driving force in asset prices.

US: Strong labour NFPs do not increase demand for dollars (Yann Quelenn)

December Nonfarm payroll increased substantially at 292k, well above the market consensus which was betting on 200k. Coupled with this information, the unemployment rate printed at 5%. The data suggest that the labour market conditions is improving. In addition the November NFP has been revised up to 252k from 211k. The service sectors is driving up the labour market as the sector added 230k to payrolls. Yet, the manufacturing payrolls only added 8k in December and it should not improve sharply this year as the current strong dollar and lingering low commodities price keep on weighing on the sector.

As a result, we believe that Fed rate hikes expectations for March 2016 should have increased. However, market participants are very concerned about the global uncertainties and in particular by China’s turmoil. The Shanghai composite has lost more than 10% on the last three sessions. The probability of a Fed rate hike in March has then declined. In other words, markets need more insurance that the overall U.S. economy is recovering and won’t be “much” impacted by the global situation. The demand for dollar has remained stable and the S&P 500 has lost 1.08% last Friday. Next data, as retail sales will confirm the sustainability of the ongoing momentum. We remain bearish on the EURUSD.

Swiss Retails Sales Disappoint

Swiss retail trade sales fell -2.1 from -0.8% in November. The decline was broad-based, with negative contributions across the board and reinforced an alarming negative trend in consumer behavior. Although the number is significantly backwards-looking, it does illustrate the challenge facing the Swiss economy. The strong CHF has changed consumer behavior to trade outside of Switzerland. We note that this period encapsulates the terror alert which paralyzed potions of the country, limiting activity. Recent data indicate that a deflation is entrenching and labor market softening. Switzerland continues to suffer with the strong CHF, as safe-haven trades are offsetting efforts by the SNB to deprecate the franc. We continue to see the domestic economy struggle with unseasonably warm El Nino weather keeping ski season tourism at home. With Switzerland still solid current account surplus, gold deposits and stable political environment investor will further rotate into CHF as China and global demand persist. This trend will intensify as Europe’s inflation prospects dim and the ECB shifts towards additional easing. Once again the SNB will need to stand ready to defend the CHF from unwanted appreciation.

The Risk Today

Peter Rosenstreich

EURUSD keeps pushing higher. Yet, the technical structure suggests a downside momentum. Hourly resistance may be found at 1.1096 (28/10/2015 low) while hourly support can be found at 1.0524 (03/12/2015). 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).

GBPUSD is now consolidating above 1.4500. 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.

USDJPY selling pressure continues. Short-term technical structure suggests a stronger downside momentum. The pair is now holding below former support 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 116.18 (24/08/2015 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).

USDCHF's uptrend momentum keeps going as long as the pair remains in the upward channel. Support is located at 0.9876 (14/12/2015 low). Hourly resistance can be found at 1.0125 (05/01/2015 high). Expected to monitor toward support implied by uptrend channel. 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

Resistance and Support: