RBA leaves rate unchanged, markets to focus on Brexit negotiations

Forex News and Events

Mixed outlook keeps RBA side-lined  (by Arnaud Masset)

After testing the key resistance at $0.7489 (Fibonacci 38.2% on November debasement) - this is the second time in the past week that AUD/USD failed to break the latter resistance to the upside. The Australian dollar accelerated its fall after the Reserve Bank of Australia decided, as broadly expected, to leave its cash rate target unchanged at the record low of 1.50%. The central bank’s governor, Philip Lowe, made some minor changes to the accompanying statement, reiterating that the economy is “continuing its transition following the mining investment boom” and adding that even though the unemployment rate has improved this year, “labour market indicators continue to be mixed” as part-time unemployment remains significant.

On the inflation front, Governor Lowe maintained his cautious approach as the “subdued growth in labour costs” casts a shadow on the inflation outlook. The latest inflation report, released at the end of October surprised slightly to the upside (1.3%y/y versus 1.1% expected). However, with the market expecting a contraction in GDP growth in the third quarter (-0.1%q/q versus 0.5% in the June quarter), core inflationary pressures should have remained subdued in the September quarter - most of the lift may come from the rise in commodity prices.

In the foreign exchange market, the Aussie is most likely to suffer in the month ahead as traders shift investments towards the US. Indeed, over the last few months, investors across the globe have struggled to find higher returns, which has prompted them to load on risk, lifting high quality commodity currencies such as the Aussie and the Kiwi but also emerging market currencies on a broad basis. Nevertheless, the party may be over for higher yielding currencies as the US yield outlook shows signs of improvement. We therefore believe that the risk is on the downside in AUD/USD against the backdrop of another rate cut from the RBA.

The fate of Brexit now lies with the Supreme Court (by Yann Quelenn)

The UK Supreme Court hearing on Brexit reaches day two of one of the most important constitutional cases in British legal history. The Supreme Court is hearing an appeal from the Government to overturn a High Court ruling which would allow PM Theresa May to trigger Article 50 and therefore begin the formal exiting process next Spring.

This hearing has exposed an underlying feeling that the Brexit referendum result is being stolen from people. Financial markets are indeed already reflecting the lower likelihood of a UK exit. Indeed, the pound continues to appreciate as long as short squeezes add-up. The pound has reached a two-month high against the dollar and a three-month high against the single currency.

We believe that a non-respect of the people’s vote could likely provoke a big democratic crisis in Europe. Such a scenario would not be a first with France in 2005 and Greece in 2015 being just some examples of previously overturned referendum results. However, Brexit represents the first time that a country tries to actually exit Europe and it would simply mean that exiting is an almost impossible path. Though a ruling will not be provided until the New Year, the Supreme Court, which is full of Europhiles, is likely to decide to give MPs the power to decide the fate of the UK’s future in the union.

EUR/GBP - Riding Downtrend Channel.

 

Today's Key Issues	Country/GMT
Nov CPI MoM, exp -0,10%, last 0,10%	CHF/08:15
Nov CPI YoY, exp -0,20%, last -0,20%	CHF/08:15
Nov CPI EU Harmonized MoM, exp -0,10%, last 0,10%	CHF/08:15
Nov CPI EU Harmonized YoY, exp 0,00%, last -0,30%	CHF/08:15
Nov Markit Germany Construction PMI, last 52,9	EUR/08:30
Nov Region Survey: Output Past 3M, exp 0,53, last 0,49	NOK/09:00
Nov Region Survey: Output Next 6M, exp 0,7, last 0,75	NOK/09:00
Nov Markit Germany Retail PMI, last 51	EUR/09:10
Nov Markit Eurozone Retail PMI, last 48,6	EUR/09:10
Nov Markit France Retail PMI, last 47,5	EUR/09:10
Nov Markit Italy Retail PMI, last 46,5	EUR/09:10
3Q F GDP SA QoQ, exp 0,30%, last 0,30%	EUR/10:00
3Q F GDP SA YoY, exp 1,60%, last 1,60%	EUR/10:00
3Q Gross Fix Cap QoQ, exp 0,40%, last 0,00%, rev 1,20%	EUR/10:00
3Q Govt Expend QoQ, exp 0,40%, last 0,10%, rev 0,40%	EUR/10:00
3Q Household Cons QoQ, exp 0,30%, last 0,20%	EUR/10:00
COPOM Monetary Policy Meeting Minutes	BRL/10:30
Nov Effective Exchange Rate, last 98,51	TRY/11:30
Nov Vehicle Production Anfavea, last 174150	BRL/13:20
Nov Vehicle Sales Anfavea, last 159037	BRL/13:20
Nov Vehicle Exports Anfavea, last 36913	BRL/13:20
Oct Trade Balance, exp -$42.0b, last -$36.4b	USD/13:30
3Q F Nonfarm Productivity, exp 3,30%, last 3,10%	USD/13:30
Oct Int'l Merchandise Trade, exp -1.70b, last -4.08b	CAD/13:30
3Q F Unit Labor Costs, exp 0,30%, last 0,30%	USD/13:30
Central Bank Rollover Currency Swap Auction	BRL/13:50
Bank of England Bond Buying Operation	GBP/14:50
Nov Ivey Purchasing Managers Index SA, exp 60, last 59,7	CAD/15:00
Oct Factory Orders, exp 2,60%, last 0,30%	USD/15:00
Oct Factory Orders Ex Trans, last 0,60%	USD/15:00
Oct F Durable Goods Orders, exp 3,40%, last 4,80%	USD/15:00
Oct F Durables Ex Transportation, exp 0,50%, last 1,00%	USD/15:00
Oct F Cap Goods Orders Nondef Ex Air, last 0,40%	USD/15:00
Oct F Cap Goods Ship Nondef Ex Air, last 0,20%	USD/15:00
Dec IBD/TIPP Economic Optimism, exp 52, last 51,4	USD/15:00
Nov ANZ Job Advertisements MoM, last 0,60%	NZD/21:00
RBNZ's Wheeler Appears at Select Committee on Annual Report	NZD/22:00
Nov AiG Perf of Construction Index, last 45,9	AUD/22:30
Nov CPI MoM, exp 0,50%, last 0,40%	RUB/23:00
Nov CPI YoY, exp 5,90%, last 6,10%	RUB/23:00
Nov CPI YTD, exp 5,10%, last 4,50%	RUB/23:00
Nov CPI Core MoM, exp 0,40%, last 0,40%	RUB/23:00
Nov CPI Core YoY, exp 6,20%, last 6,40%	RUB/23:00
3Q BoP Current Account Balance, last -$0.30b	INR/23:00

 

The Risk Today

Yann Quelenn

EUR/USD is pushing higher ahead of the ECB meeting next Thursday. Hourly resistance is given at 1.0686 (29/11/2016 high) has been brokenn. Support can be found at 1.0506 (05/12/2016 low). The pair seems to stall around 1.0800. Expected to show renewed bearish pressures. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support given at 1.0458 (16/03/2015 low) is on target.

GBP/USD's bullish momentum is growing. Hourly resistance at 1.2674 (11/11/2016 high) has been broken. Hourly support is given at 1.2302 (18/11/2016 low). Expected to further monitor strong resistance at 1.2771 (05/10/2016 high). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY's bullish momentum is definitely on. The pair is now monitoring strong resistance given at 114.87 (16/02/2016 high). Hourly support is given around 111.36 (28/11/2016 low). Stronger support lies at 108.56 (17/11/2016 low). Expected to see another upside move We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF is pushing lower. Key support is given at the parity. Hourly resistance lies at 1.0205 (30/11/2016 high). The road is wide-open for further weakness. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

 

Resistance and Support:

EURUSD	GBPUSD	USDCHF	USDJPY
1.13	1.3481	1.1731	125.86
1.1259	1.3121	1.0328	121.69
1.0954	1.2775	1.0257	114.87
1.0768	1.2748	1.0069	114.13
1.0506	1.2302	0.9929	112.88
1.0458	1.2083	0.9632	109.8
1	1.1841	0.9522	108.56