Swiss exports contract in Jan, Fed is losing faith

Forex News and Events

Swiss exports fell for a third straight month (by Arnaud Masset)

Swiss exports contracted for a third straight month as the weak global outlook continued to weigh on the sale of Swiss high value-added products. Export contracted 1.1%m/m (s.a.) in January or -3.9%y/y on a year-over-year basis, following a downwardly revised contraction of 1.5%m/m in the previous month (or -0.9%y/y). The fall in exports was mainly driven by the sharp contraction in machinery and electronic products and watches exports, which contracted 11%y/y and -8%y/y respectively. Exports to most continents have also decreased substantially (Latin America: -16%; Asia: -5%) in response to a worsening global outlook and fears over China’s growth prospect. However, thanks to a strong greenback, exports to the United States rose 3%, while the incipient upturn in the euro zone economy boosted exports to member countries (euro zone: +2.3%; France: +10.8%; Spain +14%). On the imports side, the long-term effects of the strong Swiss francs continued to weigh heavily on Swiss companies’ growth prospect but was partially off-set by the weakness of crude oil prices as imports rose 2.5%m/m (s.a.).

Overall, the trade balance reached CHF3.51bn in January, up from 2.59bn in the previous month. The SNB’s decision to remove the EUR/CHF floor in January 2015 has forced Swiss companies to reduce their margins to increase competitiveness. Even though Swiss companies have made significant efforts to adjust to this strong CHF environment, the process is not over yet as more efforts are still required to ensure the viability of Swiss companies over the long-term. Today, EUR/CHF consolidates yesterday’s gains and stabilised above the 1.10 threshold.

Minutes shows that the Fed is backing off (by Yann Quelenn)

The U.S central bank has released its minutes from January’s FOMC meeting. As expected, the discussions revolved around global financial conditions. Indeed, policymakers are concerned that the fall-out could hit the U.S. economy. Significantly, the Fed discussed changing the central bank’s rate path for this year.

What is clear is that we should not see four rate hikes this year. We maintain the same view we had before December's rate hike that such a hike would only be made in order to ensure confidence in the central bank as financial markets were more than expecting a rate hike. Economic conditions were in any case insufficient for triggering a rate hike and we can evidently see that we are not even close to seeing a new raise.

Geopolitical risks are also of major concern for the Fed. Indeed, there is an urgent need for the US to ensure confidence in the dollar. The many global conflicts the US is involved in may provide the start of an answer. Many countries are now trying to get rid of the dollar from their exchange. The latest country to do this is Iran which claims that it is paid in euro for its oil.

As a result we strongly believe that the Fed’s monetary policy does not only depend on economic data in the U.S. but also on geopolitical risks. The Fed for now is definitely backing off.

EUR/CHF - Buying Pressures Are Still On

The Risk Today

Yann Quelenn

EUR/USD is slightly pushing lower. The short-term technical structure suggests a further bearish move. Hourly support may be found at 1.1070 (04/02/2016 low). Hourly resistance lies at 1.1260 (10/02/2016 high). 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 trading around 1.4300. Hourly resistance can be found at 1.4338 (17/02/2016 high). Hourly support can be found at 1.4235 (17/02/2015 low). The technical structure suggests further consolidation before entering into another downside move. 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 trading mixed. The medium-term technical structure is clearly negative. Hourly support can be found at 113.38 (17/02/2016 low). Hourly resistance lies can be found at 114.87 (16/02/2016 high). Expected to further decline. 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 keeps on increasing. The short-term succession of higher lows favours a bullish bias. Hourly resistance can be found at 0.9942 (17/02/2016 low). Hourly support is given at 0.9847 (16/02/2016 low). Expected to see further strengthening. 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: