Draghi to speak before EU parliament, China's weak trade data

Forex News and Events

ECB to remain dovish (by Arnaud Masset)

Mario Draghi is due to speak before the European parliament committee in Brussels later this afternoon. The ECB’s president will likely deliver a dovish speech, in line with its previous appearance in early February during which he warned against the risk of adopting a wait-and-see attitude that could de-anchor inflation expectations. Such a scenario could force the ECB to act more aggressively to reverse the trend, he argued. With the single currency trading at multi-month high against the US dollar, Draghi has no choice but to reiterate its call for further monetary easing. The big question now is to determine whether the ECB will push rates further into negative territory or increase/extend its quantitative programme. Looking at the broader picture, we noted that the latest rate cuts implemented by central banks - BoJ and Riksbank - were not really a success. The ECB will therefore have to assess carefully the impact of another rate cut o its credibility, which took a hit on December 3rd. Ahead of the speech, EUR/USD is trading lower and currently testing the 1.12 support level. On the downside, the 1.08 level will act as strong support while on the upside, the single currency will need strong boost to break the 1.14 resistance. The risk is clearly on the downside as Draghi will likely reiterate the ECB’s willingness to see a weaker euro.

Weak China Trade data (by Peter Rosenstreich)

China’s January trade data was weaker than forecasted reversing the recent positive trend and slender increasing optimism. The disappointing trade data highlights the fragile global and domestic Chinese demand, and will likely keep investors anxious. According to the Chinese data released both export and imports contracted more than expected. Exports contracted by -11.2% y/y from -1.4%, while imports fell by -18.8% y/y from -7.6%. The trade surplus surged to $63.3bn a historical high. Exports for mechanical and electrical products continue to drive gains. Valuations seem to be what drove the fall in export and imports, however decline in demand from EU and US were also to blame. Exports to the EU fell by -12% while exports to the US remained negative. Weaker China’s PMI data suggests that underperformance of trade will not reverse near term. Elsewhere, after the week long lunar New Year break, USDCNY mid fix was sharply higher acknowledging the USD recent weakness at 6.5118. PBoC Governor Zhou Xiaochuan broke his silence on exchange rate reform.
Governor Zhou suggested that CNY pricing would gain a greater reference to a basket of currencies yet, “does not mean pegging to a basket”. The elaborated saying “a mechanism for macroeconomic data to influence the exchange rate will be introduced”. Finally, Governor Zhou reiterated other Chinese officials (and our view) that “keeping the stability of RMB exchange rate to a basket of currencies is the major goal” and “is no basis for persistent depreciation.” We suspect despite outflow pressure the PBoC will keep the CNY stable near term.

EURUSD - Break uptrend support.

The Risk Today

Peter Rosenstreich

EUR/USD has declined sharply near the resistance at 1.1387 (20/10/2015 high), falling below uptrend channel. The break of the rising channel confirms a negative short-term technical structure. Hourly support may be found at 1.1166 (10/02/2016 low). Hourly resistance lies at 1.1260 (10/02/2016 high and uptrend channel). 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's short-term momentum is still grinding higher. Hourly resistance can be found at 1.4571 (12/02/2016 high). Hourly support can be found at 1.4475 (rising uptrend). The technical structure looks very positive. Expected to show further increase. The long-term technical pattern is negative and favours a further decline towards the key support at 1.3503 (23/01/2009 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 is recovering after its recent massive sell-off. Monitor the hourly support at 113.27 as a break would signal a weakening short-term bullish momentum. Hourly resistance lies can be found at 114.17 (intraday high). Hourly support is located at 112.74 (rising uptrend). The strong support at 115.57 (16/12/2014 low) has been broken and fully erased. We start favouring a long-term bearish bias. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USD/CHF is challenging the resistance area between 0.9820/0.9869 (10/02/2016 high). The short-term succession of higher lows favours a bullish bias. Hourly support can be found at 0.9775 (15/02/16 low). In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.

Resistance and Support: