Aussie inflation surprised to the upside, oil rout continues

Forex News and Events

Is the AUD sell-off overdone? (by Arnaud Masset)

Like all the other commodity currencies, the Australian dollar got hammered since the beginning of 2016 - the Aussie fell more than 4.5% against the US dollar, dropping below $0.69 - on mounting uncertainties about China growth outlook and, obviously, the commodity rout which brought the WTI as low as $28.40 a barrel. It is also important mention that iron ore delivered to Qingdao port fell below $40 a tonne after peaking at $44 in the first days of 2016.

However, we have the feeling that the AUD sell-off is overdone as fear took over global markets, dragging investors away from fundamentals. A period of stabilisation - if not a rebound - is more and more likely, especially given the positive signals send by the Aussie economy over the past few weeks. Unemployment rate remained stable at 5.8% while market participants were expecting an increase to 5.9% in December. TD securities inflation rose to 2.0% in December from 1.8% in the previous month as the weakness of the Aussie allowed to import inflation. Nevertheless, we remain caution on AUD/USD as the exposition of the Aussie economy to China is massive (more than 30% of the country’s exports go to China).

Oil prices keep on collapsing (by Yann Quelenn)

The Brent slid below 28 dollars per barrel at the beginning of the Asian session before bouncing back slightly. Oil is trading at levels unseen in the last 12 years in a major context of oil oversupply. OPEC members, concerned about keeping the market share and pushing other oil producers out of the market, supply more than 1 million barrels per day.

We believe that the crude oil downside momentum should keep going as sanctions against Iran have been lifted due to the recent compromises concerning the country's nuclear programme as was stipulated under the deal that was signed last year between Iran and the International Community. The lifting of these sanctions will result in an additional 500k barrels per day.

Any agreement between OPEC members on a possible supply in order to increase price and profits seems currently impossible. In particular, tensions between Saudi Arabia and Iran are preventing any such possible cooperation as it seems the key driver in this conflict is to become the leading regional power. As a result, we target a price of $25 per barrel of Brent over the medium-term.

EUR/USD to be range-bound (by Peter Rosenstreich)

This week the ECB is unlikely to add additional stimulus (policy on hold) yet press conference should indicate that further easing is likely. European economic data has been sturdier yet disinflationary pressures / risks are growing. We suspect given QEs lack of noticeable inflation boost, but extensive sheet expansion, will keep Draghi cautious about over promising more easing. European flash PMI data to be released this week is likely to support further stability in Europe. Yet, we should see limited spillover into a weaker Euro. Data from the US will be unsupportive of a March Fed rate hike and therefore un-support of the policy divergent trade. US CPI data release this week should weaken as fading base-effect will pressure headline inflation. While we remain bearish on Euro, this week should see EURUSD consolidate around the 1.08 level. That’s said, broader market sentiment has been driving FX prices. Should we see oil take leg lower due to sanctions on Iran being lifted (yet right after the US lifted sanctions new sanctions were placed on Iran by the White house), we could see further USD strength.

EUR/GBP - Changing Long-Term Momentum?

The Risk Today

Yann Quelenn

EUR/USD has broken the downtrend channel before bouncing back. 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 show further weakness. 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 keeps on weakening and is now heading toward key support at 1.4231. 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 keeps on weakening. Hourly resistance lies at 123.76 (18/11/2015 high). Expected to show 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).

USD/CHF's uptrend momentum keeps going as long as the pair remains in the upward channel. Hourly support is located at 0.9876 (14/12/2015 low) while hourly resistance can be found at 1.0125 (05/01/2015 high). Expected to monitor hourly resistance at 1.0125. 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: