SNB sight deposits & currency war

Forex News and Events

SNB sight deposits & currency war (by Yann Quelenn)

This morning, Swiss total sight deposits increased to CHF 518.2 bn from CHF 517.6 bn. We continue to believe that these sight deposit increases are not only due to the safe haven status of the country, but rather on SNB FX intervention.

Since the SNB scrapped the 1.20 euro cap, total sight deposits have increased from CHF 444 bn to CHF 518 bn. In the meantime, the SNB has been buying foreign currency to defend the franc. These FX reserves have to be invested and the SNB has decided to massively increase its exposure to the American stock market, underpinning the asset bubble. Half of the SNB balance sheet is invested in global stocks with 20% of these being US stocks.

Is the SNB manipulating the currency? This is the question on many lips after the U.S. Treasury Department announced last Friday that Switzerland is now on a watch list of countries with strong surpluses and market interventions. There is a fear that Switzerland may be trying, according to the U.S (although not explicitly expressed), to gain advantage of its exports. This is ironically coming from a country that has used massive QE over the span of the past decade. The currency war rages on.

Long Euro on ECB disappointment

The highlight of the trading week is likely to be the ECB meeting an accompanying press conference. According the media reports and market speculation the ECB is discussing tapering its asset purchase program. The program is scheduled to end in March 2017 the previous reports are that the program would be extended. We suspect that President Draghi will not announce any shift in policy strategy. The incoming data remains mixed putting the ECB in a wait-and-see mode, while with five months before the deadline any speculation or decision would be premature. We believe that any change in policy should be accompanied by change in macro-economic projections. That would indicate that December is more likely meeting for a decision on extension. Draghi is likely to be peppered with questions on possible tapering at the Q&A session. Yet, Draghi uncanny ability to avoid any question he is not ready to answer suggests the press is unlikely to uncover ECB policy. In addition with event risk building around the US elections (plus the Italian constitutional referendum) the ECB is unlikely going to make waves prior. However, there is some speculation that a technical announce (such as removing the yield floor) at the October meeting, in order to set the stage without significant market reaction is possible. Given our outlook for a Fed to hold policy rates unchanged in 2016 and for the ECB to delay any advanced signaling we see upside to the EURUSD. We see support at 1.0950 as a good place to reload longs for a quick retest of 1.1068 resistance.

 

Today's Key Issues	Country/GMT
14.oct. Total Sight Deposits, last 5,18E+11	CHF/08:00
14.oct. Domestic Sight Deposits, last 4,52E+11	CHF/08:00
Sep CPI MoM, exp 0,40%, last 0,10%	EUR/09:00
Sep F CPI YoY, exp 0,40%, last 0,40%, rev 0,20%	EUR/09:00
Sep F CPI Core YoY, exp 0,80%, last 0,80%	EUR/09:00
Aug Int'l Securities Transactions, last 5,23E+09	CAD/12:30
Oct Empire Manufacturing, exp 1, last -1,99	USD/12:30
Sep Industrial Production MoM, exp 0,20%, last -0,40%	USD/13:15
Sep Capacity Utilization, exp 75,60%, last 75,50%	USD/13:15
Sep Manufacturing (SIC) Production, exp 0,10%, last -0,40%	USD/13:15
14.oct. Bloomberg Nanos Confidence, last 57,1	CAD/14:00
3Q CPI QoQ, exp 0,00%, last 0,40%	NZD/21:45
3Q CPI YoY, exp 0,10%, last 0,40%	NZD/21:45

 

The Risk Today

Peter Rosenstreich

EUR/USD keeps on going lower. Yet, support given at 1.0952 (25/07/2016 low) is on target. Hourly resistance lies at 1.1058 (13/10/2016 high). Key resistance is located far away at 1.1352 (18/08/2016 high). Further decline is favoured. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.

GBP/USD's sell-off starts to fade. Hourly resistance can be found at 1.2272 (13/10/2016 high). Key resistances stand far away at 1.2620 (declining trendline) then 1.2873 (03/10/2016). Support base is now building from 1.2090 (11/10/2016 low). Expected to show further consolidation. 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 is pushing slightly higher. The pair lies within a short-term uptrend channel. Hourly support is located at 102.81 (10/10/2016 low) and 100.09 (27/09/2016) while hourly resistance can be found at 104.64 (13/10/2016 higher). 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 consolidating but remains on a bullish momentum since September 15. Hourly resistance is given at 0.9950 (27/07/2016 high). Hourly support is be located at 0.9733 (05/10/2016 base) then 0.9632 (26/08/2016 base low). Expected to see continued increase. 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
1.1616	1.3445	1.0093	107.9
1.1479	1.3121	0.9956	105.63
1.1428	1.2857	0.9885	104.32
1.1128	1.2429	0.9814	103.83
1.1046	1.2352	0.9522	99.02
1.0913	1.1841	0.9444	96.57
1.0822	1.052	0.9259	93.79