FOMC minutes left investors unsatisfied, Germany's industry recovers

Forex News and Events

FOMC minutes (by Arnaud Masset)

The publication of the minutes of the last FOMC meeting did not provide any new insights; the pace of the tightening process remains a mystery as it would be highly data dependant. Moreover we have the feeling that the members voted a rate hike without heart, given the frequency of appearance of the word “gradual” and the overly cautious tone used to describe inflationary pressures. Even though the Committee decided unanimously to raise the Federal fund rate on December 16th, it was a close call for some of them as inflation worries remain.

In December, we already thought that raising rates wasn’t appropriate, especially given the inflation outlook, and that the Fed will space out the rate hikes over a longer period than expected by the market. Given the actual market turmoil and global economic slowdown, we believe that the Fed fund rate will stay unchanged for a longer period of time. US 2-year treasury rates fell to 0.9560% from 1.10% in early January as investors seek safe-haven assets. The 5-year trades at 1.61% while the 10-year moves slightly below 2.14%. The US dollar remains under pressure with the dollar index down 0.35% today while EUR/USD climbed above the 1.08 level. A short-term recovery of the single currency is highly likely while in the mid-term the EUR should remain under pressure.

Germany: consumption lowers but industry recovering

November German retail sales disappointed this morning. Data printed below expectations at 0.2% m/m, but above prior data from October. In contrast the manufacturing industry is breathing again, with factory orders having increased 1.5%, above the 0.1% forecast. The annualized data has also come out higher at 2.1% year-on-year.

Last year, Germany was able to decrease its unemployment rate to 6.3% from 6.5%. It is also true that companies are competitive and budget surpluses have been generated in the region of €4 billion. The concerning aspect however is that current German growth is mostly driven by consumption, which is currently fading. Moreover, the German economy generated less inflation than expected in December.

Yet, despite this Germany remains the most competitive European economy and the only European country capable of controlling its debt-to-GDP ratio, which remains below 80%. Other European countries struggle with the inability to debase the currency and continue to see their debt grow. As stated above we remain bearish on the EURUSD in the mid-term and target the pair to head back towards 1.0700.

USD/CAD – Where Will It Stop?

The Risk Today

Yann Quelenn

EUR/USD has bounced back but remains below 1.0800. The road is still wide open to hourly support at 1.0524 (03/12/2015 low). Hourly resistance may be found at 1.1096 (28/10/2015 low). Expected to further decline. In the longer term, the technical structure favours a bearish bias as long as resistance 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 deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD is heading lower toward support at 1.4566 (05/04/2015 low). Hourly resistance is given at 1.5242 (13/12/2015 high). Stronger resistance can be found at 1.5336 (19/11/2015 high). Expected to show continued weakness. The long-term technical pattern is negative and favours a further decline towards the key support at 1.4231 (20/05/2010 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 selling pressure continues. Short-term technical structure suggests a stronger downside momentum. Hourly support at 118.07 (15/10/2015 low) has been broken. Hourly resistance lies at 123.76 (18/11/2015 high). Expected to further decline towards hourly support at 116.18 (24/08/2015 low). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 116.18 (24/08/2015 low).

USD/CHF's uptrend momentum keeps going as long as the pair remains in the uptrend channel. Support is located at 0.9876 (14/12/2015 low). Hourly resistance can be found at 1.0125 (05/01/2015 high). The short-term technical structure also shows an upside move. Expected to further increase. In the long-term, the pair has broken resistance at 0.9448 and key resistance at 0.9957 suggesting further uptrend. Key support can be found 0.8986 (30/01/2015 low). As long as these levels hold, a long term bullish bias is favoured.

Resistance and Support: