USD's rally continues ahead of Friday's NFP
|Forex News and Events
Fed balanced message (by Peter Rosenstreich)
Fed Chair Yellen delivered a balanced message at Jackson Hole, which the underpriced market took as hawkish. However, it was the follow-up comments by Vice Chair Fischer later in the day which really convinced the market that it was under-positioned. Fed Fund futures quickly adjusted from a 20% to 45% probability of a rate hike in September. The net result was US front-end yields shifting higher, while USD rallied across the board (gold was weaker). The 45% probability reflects the coin-toss chance of a rate hike that remains data dependent. Friday’s employment reports will be the next key event for Fed watchers. A robust payroll read above 200k will solidify a hike while something below 100k will shift 3m average near 200k, low enough to avoid a rate hike. Interestingly, the subject of US elections was not discussed at Jackson Hole and remains a critical topic. We suspect that in the background the Fed must be debating the repercussions of a Hillary or Trump victory.
UK PMI set to bounce back (by Yann Quelenn)
Tomorrow, the Markit UK PMI for August will be released and data is expected to come in higher than the July release. Yet the indicator should again remain below 50 for the second consecutive month. Although having been on tenterhooks since the Brexit vote, UK data has surprised in recent weeks and shows no signs of slowing in activity.
In our view, Brexit fears were and are still largely overestimated. UK adhesion to the EU was, before the vote, already subject to many conditions which will not dramatically change the future of the island. From our vantage point, the BoE is likely to stay on hold at the September meeting, which will be held one week before the Fed meeting. Indeed, UK GDP rose 0.6% in the second quarter and the central bank will likely await additional data before further easing. The cable has further upside room to appreciate and we should not see the pound go below 1.30 dollars. The Brexit vote has been positive in terms of helping the BoE to devalue the currency. As a result, policymakers have gained some time to further adjust their strategy.
Politically speaking, it would be a very bad move, from Theresa May to now trigger any fear that a Brexit will not happen as it is in the country's interest to hold on to their weaker currency. This is why the UK prime minister continues to hold firm on her position that the Brexit vote result must be respected. We remain skeptical however and will only believe it once article 50 is triggered.
Silver – Ready For A New Leg Higher.
| Today's Key Issues | Country/GMT |
|---|---|
| Aug KOF Leading Indicator, exp 102, last 102,7, rev 103,5 | CHF/07:00 |
| Bank of Korea Policy Meeting Minutes | KRW/07:00 |
| Aug P CPI EU Harmonised MoM, exp 0,00%, last -1,30% | EUR/07:00 |
| Aug P CPI EU Harmonised YoY, exp -0,30%, last -0,70% | EUR/07:00 |
| Aug P CPI MoM, exp 0,10%, last -0,70% | EUR/07:00 |
| Aug P CPI YoY, exp -0,30%, last -0,60% | EUR/07:00 |
| Jun Wages Non-Manual Workers YoY, last 0,90% | SEK/07:30 |
| SEB Nordic Economic Forecasts | SEK/08:00 |
| Jun Retail Sales MoM, exp -0,20%, last 0,30% | EUR/08:00 |
| Jun Retail Sales YoY, exp 0,10%, last -1,30% | EUR/08:00 |
| Jul Net Lending Sec. on Dwellings, exp 3.1b, last 3.3b | GBP/08:30 |
| Jul Mortgage Approvals, exp 61.9k, last 64.8k | GBP/08:30 |
| Jul Money Supply M4 MoM, last 1,10% | GBP/08:30 |
| Jul M4 Money Supply YoY, last 3,50% | GBP/08:30 |
| Jul M4 Ex IOFCs 3M Annualised, exp 7,10%, last 8,00% | GBP/08:30 |
| Aug Economic Confidence, exp 104,1, last 104,6 | EUR/09:00 |
| Aug Business Climate Indicator, exp 0,36, last 0,39 | EUR/09:00 |
| Aug Industrial Confidence, exp -2,7, last -2,4 | EUR/09:00 |
| Aug Services Confidence, exp 11,1, last 11,1 | EUR/09:00 |
| Aug F Consumer Confidence, exp -8,5, last -8,5 | EUR/09:00 |
| BOE Indexed Long-Term Repo Operation Results | GBP/09:40 |
| Fed's Fischer Speaks on Bloomberg Television | USD/10:30 |
| Aug FGV Inflation IGPM MoM, exp 0,12%, last 0,18% | BRL/11:00 |
| Aug FGV Inflation IGPM YoY, exp 11,49%, last 11,63% | BRL/11:00 |
| Jul South Africa Budget, exp -59.40b, last 23.87b | ZAR/12:00 |
| Aug P CPI MoM, exp 0,10%, last 0,30% | EUR/12:00 |
| Aug P CPI YoY, exp 0,50%, last 0,40% | EUR/12:00 |
| Aug P CPI EU Harmonized MoM, exp 0,10%, last 0,40% | EUR/12:00 |
| Aug P CPI EU Harmonized YoY, exp 0,50%, last 0,40% | EUR/12:00 |
| Jul National Unemployment Rate, exp 11,50%, last 11,30% | BRL/12:00 |
| 2Q Current Account Balance, exp -$20.20b, last -$16.77b | CAD/12:30 |
| Jul Industrial Product Price MoM, exp -0,30%, last 0,60% | CAD/12:30 |
| Jul Raw Materials Price Index MoM, exp -1,20%, last 1,80% | CAD/12:30 |
| Jun S&P CoreLogic CS US HPI MoM SA, last 0,19% | USD/13:00 |
| Jun S&P CoreLogic CS 20-City NSA Index, last 188,29 | USD/13:00 |
| Jun S&P CoreLogic CS 20-City MoM SA, exp -0,10%, last -0,05% | USD/13:00 |
| Jun S&P CoreLogic CS 20-City YoY NSA, exp 5,12%, last 5,24% | USD/13:00 |
| Jun S&P CoreLogic CS US HPI NSA Index, last 180,7 | USD/13:00 |
| Jun S&P CoreLogic CS US HPI YoY NSA, last 5,05% | USD/13:00 |
| Bank of England Bond-Buying Operation Results | GBP/13:50 |
| Aug Consumer Confidence Index, exp 97, last 97,3 | USD/14:00 |
| ABRAS July Supermarket Sales | BRL/14:00 |
| Jul Central Govt Budget Balance, exp -19.5b, last -8.8b | BRL/18:30 |
| Sep Business Survey Non-Manufacturing, last 70 | KRW/21:00 |
| Sep Business Survey Manufacturing, last 71 | KRW/21:00 |
| Jul Federal Debt Total, last 2959b | BRL/22:00 |
| Jul Eight Infrastructure Industries, last 5,20% | INR/22:00 |
| SURVEY: Private Capital Expenditure 2016-17 A$97b | AUD/22:00 |
The Risk Today
Yann Quelenn
EUR/USD keeps on pushing lower after the break of the uptrend channel. Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). Hourly support at 1.1245 (24/05/2016 low) has been broken. The road is wide-open for further decline. 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 is still trading above 1.3000. Hourly resistance can be found at 1.3279 (26/08/2016 high) and 1.3372 (03/08/2016 high). Hourly support can be found at 1.3024 (19/08/2016 low). Expected to show continued weakness. 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 approaching hourly resistance given at 102.83 (02/08/2016 high). Strong support is given at 99.02 (24/06/2016 low). Expected further consolidation. We favour 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 higher. The road is still wide-open for further strengthening. Hourly resistance lies at 0.9956 (30/05/2016 high). Hourly support can be found at 0.9522 (23/06/2016 low). Expected to show further bullish move. 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.
| EURUSD | GBPUSD | USDCHF | USDJPY |
|---|---|---|---|
| 1.1616 | 1.3981 | 1.0093 | 109.14 |
| 1.1479 | 1.3534 | 0.9956 | 107.9 |
| 1.1428 | 1.3372 | 0.9844 | 102.83 |
| 1.117 | 1.3073 | 0.9799 | 102.3 |
| 1.1046 | 1.2851 | 0.9522 | 99.02 |
| 1.0913 | 1.2798 | 0.9444 | 96.57 |
| 1.0822 | 1.188 | 0.9259 | 93.79 |
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