GBP rallies on good retail sales, BRL recovers

Forex News and Events

The FX trades are driven by more JPY-negative news today. JPY-crosses rallied to fresh multi-year highs as the PM Abe prepares to dissolve the parliament. GBP/JPY broke out the November range, rallied up to fresh six year highs. Overseas, the UK October retail sales surprised on the upside.
Combined to less dovish BoE minutes, a deeper recovery in GBP-complex is underway.

In Brazil, the Real recovers amid supportive inflation and unemployment data released yesterday. As USD/BRL prepares to step in bearish consolidation zone, the political doubts are seen as important risk to BRL recovery.

UK retail sales surprise on the upside

The UK retail sales surprised on the upside in October. The sales excluding autos accelerated 0.8% on month (vs. 0.3% exp. & -0.3% last), 4.6% on year to October (vs. 4.2% exp. & 3.1% last). Supportive economic data, combined to acceptably dovish BoE minutes turn the sentiment bullish in GBP- complex. GBP/USD is now expected to push for deeper short-term correction, challenging 1.5700-1.5800 option barriers. EUR/GBP attacks on 200-dma should weaken, helped by decent vanilla puts at 0.7980/0.8000 and 0.8080 at today expiry.

To follow-up with GBP/JPY, the pair closed the day at 185.00 - above its November range - and rallied to 186.134 for the first time in six years. The breakout above the Fibonacci 50% on 2007-2011 sell-off reversed the MACD pattern, giving a push to bull momentum. Next resistances are eyed at 188.02 (upper Bollinger band), then 190.00/192.00 (Q1, 2004 - Q3, 2008 support before heavy sell-off on 4Q, 2008).

Risks to BRL recovery

Brazil inflation accelerated at the softer pace of 0.38% in mid-November print, pulling the yearly inflation down to 6.42%. The good news is that the inflation managed to step in BCB’s 4.5% (+/-2%) target band mid-November, led by weaker energy prices which certainly had a softening impact on all sub-groups. The transportation costs increased 0.20% on month to mid-November down from 0.45% in September, since the slide in global oil prices accelerated; the communication costs fell 0.21% m/m.
Less comforting news is that the government-conducted rise in fuel prices (on Nov 7th) is probably not fully reflected in mid-month figures and may push the inflation back above the target range by the end of the month. In addition, the FX volatilities certainly give little comfort to the BCB, expected to proceed with additional 25 basis points rise in Selic rate at December 3rd meeting. The central bank “won’t be complacent about inflation” said BCB’s director of economic policy Carlos Hamilton in a speech given on November 18th. The top-range inflation will likely be on BCB’s menu at next meeting, while speculations on 50 bps hike should range sideways until 3Q GDP release due next week (Nov 28th). According to market estimates, the GDP grew 0.1% in third quarter following two quarters of contraction.

USD/BRL legged down to 2.5660 before recovering to 1.5714 post-Fed minutes, the 1-month implied vol eased to 17%. A daily close below 2.57 will push MACD in the red zone suggesting extension of gains for BRL. Option bids trail above 2.5180/2.5200+ for today expiry. We remain cautious as political risks should abruptly halt BRL recovery.

Today's Key Issues (time in GMT)

2014-11-20T11:00:00 GBP Nov CBI Trends Total Orders, exp -5, last -6
2014-11-20T11:00:00 GBP Nov CBI Trends Selling Prices, exp -5, last -3
2014-11-20T13:30:00 CAD Sep Wholesale Trade Sales MoM, exp 0.80%, last 0.20%
2014-11-20T13:30:00 USD Oct CPI MoM, exp -0.10%, last 0.10%
2014-11-20T13:30:00 USD Oct CPI Ex Food and Energy MoM, exp 0.10%, last 0.10%
2014-11-20T13:30:00 USD Oct CPI YoY, exp 1.60%, last 1.70%
2014-11-20T13:30:00 USD Oct CPI Ex Food and Energy YoY, exp 1.70%, last 1.70%
2014-11-20T13:30:00 USD Oct CPI Core Index SA, exp 239.045, last 238.677
2014-11-20T13:30:00 USD Oct CPI Index NSA, exp 237.3, last 238.031
2014-11-20T13:30:00 USD Nov 15th Initial Jobless Claims, exp 284K, last 290K
2014-11-20T13:30:00 USD Nov 8th Continuing Claims, exp 2370K, last 2392K
2014-11-20T14:45:00 USD Nov P Markit US Manufacturing PMI, exp 56.3, last 55.9
2014-11-20T15:00:00 USD Nov Philadelphia Fed Business Outlook, exp 18.5, last 20.7
2014-11-20T15:00:00 USD Oct Existing Home Sales, exp 5.15M, last 5.17M
2014-11-20T15:00:00 USD Oct Existing Home Sales MoM, exp -0.40%, last 2.40%
2014-11-20T15:00:00 EUR Euro-zone Nov A Consumer Confidence, exp -10.7, last -11.1
2014-11-20T15:00:00 USD Oct Leading Index, exp 0.60%, last 0.80%

The Risk Today

EUR/USD continues to grind higher. However, the resistance at 1.2577 (see also the declining trendline) has held thus far. Another resistance can be found at 1.2632. Hourly supports stand at 1.2502 (intraday low) and 1.2444 (18/11/2014 low). In the longer term, EUR/USD is in a downtrend since May 2014. The break of the strong support area between 1.2755 (09/07/2013 low) and 1.2662 (13/11/2012 low) has opened the way for a decline towards the strong support at 1.2043 (24/07/2012 low). A key resistance stands at 1.2886 (15/10/2014 high).

GBP/USD remains weak. Monitor the hourly horizontal range between the support at 1.5593 and the resistance at 1.5736. Another resistance can be found at 1.5781 (see also the declining trendline). In the longer term, the break of the support at 1.5855 (12/11/2013 low) confirms an underlying bearish trend. A conservative downside risk is given by a test of the support at 1.5423 (14/08/2013 low). Another support can be found at 1.5102 (02/08/2013 low). A key resistance lies at 1.5945 (11/11/2014 high, see also the declining channel).

USD/JPY continues to rise. Hourly supports can be found at 117.41 (intraday low) and 116.34 (18/11/2014 low). A long-term bullish bias is favoured as long as the key support 105.23 (15/10/2014 high) holds. The break of the major resistance at 110.66 (15/08/2008 high) opens the way for a further rise towards 120.00 (psychological threshold, see also the 61.8% retracement of the 1998-2011 decline). A major resistance stands at 124.14 (22/06/2007 high).

USD/CHF continues to move within its declining channel. Monitor the key support at 0.9544. Hourly resistances can now be found at 0.9609 (intraday high) and 0.9655 (see also the declining channel). Another support can be found at 0.9442. From a longer term perspective, the technical structure favours a full retracement of the large corrective phase that started in July 2012. The recent new highs above the key resistance at 0.9691 confirm this outlook. A strong support stands at 0.9368 (15/10/2014 low). A key resistance can be found at 0.9839 (22/05/2013 high).

Resistance and Support: