USD strength to be short-lived, RUB to recover

Forex News and Events

Don’t buy the USD holiday bounce (by Peter Rosenstreich)

The back and forth in FX markets is clear indicative of sentiment chancing, rather than fundamental-driven volatility. Given the conditions we suspect that in the intraday mean reversion strategies will outperform directional breakout strategies. The choppy USD five day rally has been driven by a combination of tentative short term factors. Hawkish comments by Fed’s Bullard (as well as William & Lockhart) overwhelmed more dovish comments and Chairwoman Yellen’s own words: “proceeding cautiously”, suggest that an April rate hike might still be reasonable. US economic data has held up well despite a disappointing January and February with today’s durable goods order expected to continue a string of strong reads (St. Louis Fed President Bullard, will speak today at 12:15gmt). IMM data indicates that speculators are cutting their short USD position giving USD additional momentum. Finally, risk around Europe emulating from the terrorist attack in Belgium has investors rotating back into safe haven assets. A quick side note, while the market effect of the Brussels bombing might have a limited sustained impact we feel that the event will have a profound effect on Chancellor Merkel’s domestic political dominance and expectations for a “Brexit”. In our view FX markets have gotten ahead of rates on this move. For the USD to trade meaningfully higher we need to see US short end curve shift upwards. For this to occur we need not only for US data to remain healthy but a pickup in demand internationally. Without a supportive economic backdrop we doubt the US can sustain its solid recovery and any expectations for interest rate hikes will be short lived.

Russia – Buying gold starts to pay off (by Yann Quelenn)

Earlier in 2016, the ruble reached its all-time low against the dollar (above 82 rubble) against a backdrop of collapsing crude oil. Russia’s economic situation is concerning. Its double-digit inflation makes any action from the central bank difficult. Yet, commodities have experienced a large surge over the past months. Gold has gained more than 14.19 since the start of the year and a barrel of Brent is now trading above $40. This is a great news for Russia for which Gold represents 13% of its foreign exchange reserves and crude oil is a major source of revenues.

Elvira Nabiullina, the head of the Central Bank has already made it clear that one of its primary objectives is to increase these reserve holdings up to $500 billion. For the time being, holdings amount to $381.1billion. Today new data on forex reserves will be released and we expect it to increase. The current upside momentum for gold is definitely helping the central bank to remove some pressures on the ruble. Indeed, the Russian currency has strengthened against the dollar and the price of gold. The risk-off sentiment is ironically helping the Russian economy to fight in the currency war and some of the previous losses against the greenback are likely to be erased. We are reversing our position on the USDRUB and we think that the ruble should appreciate further to 65 for one green note over the next two weeks.

Due to the upcoming holiday, our research reports will not be distributed on March 25th and 28th. We will resume distribution starting March 29th.

Gold - Temporary Weakness.

The Risk Today

Yann Quelenn

EUR/USD is decreasing slowly. Yet, hourly resistance still lies at 1.1376 (11/02/2016 high). Hourly support is given at 1.1149 (intraday low) while stronger support is located a 1.1058 (16/03/2016 low). Expected to show continued weakness. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1746 ( 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 deterioration implies a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD is weakening and has erased the short-term bullish momentum. Yet, the medium-term technical structure is clearly bearish. Strong hourly resistance is given at 1.4514 (18/03/2016 high) while hourly support can be found at 1.4033 (03/03/2016 low). A break of strong resistance at 1.4668 (04/02/2016) is needed to show a reverse in the short-term momentum. The long-term technical pattern is negative and favours a further decline towards 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's medium term momentum is clearly negative. Yet, on the short-term, the pair keeps on strengthening. Hourly resistance is given at 113.01 (intraday high). Stronger resistance is given at 114.91 (16/02/2016 high). Hourly support is given at 110.67 (17/03/2016 low). Expected to show continued increase in the short-term. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. 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's very short-term bullish momentum is increasing. Hourly support can be found at 0.9651 (11/02/2016 low). Hourly resistance is located at 0.9913 (16/03/2016 high). Expected to show further consolidation towards 0.9800. 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: