Swiss KOF prints in line, Russia to set key rate

Forex News and Events

Switzerland’s economy stabilises (by Arnaud Masset)

The KOF economic barometer eased slightly in April as it printed at 102.7, above median forecast of 102.5 but below previous month’s upwardly revised figure of 102.8. The report suggests that Switzerland weathered relatively well the first quarter of the year as the barometer remained above its long-term average. However, Switzerland is still in the hot seat as it main export partners are less eager to import Swiss products. Indeed, the weak global demand and the strength of the Swiss franc continue to weigh heavily on the country’s exports and especially the watch industry.

Swiss watch exports fell 8.9% in the first quarter (-16% in March only!). The demand for Swiss watches collapsed in March due to a decrease in demand for almost all of its main trading partners. Demand from Hong Kong fell 37.7%y/y in March, demand from the USA decreased by 32.9%y/y, while the Chinese appetite for Swiss watches contracted 13.7%y/y. Overall, the resilience of the industrial sector limited the damage as Swiss exports contracted 1.1% y/y in March compared to a downwardly revised increase of 2.1%m/m in February.

All in all, we expect a delay in Switzerland’s economic recovery as the world’s largest economies are set to grow at are slower pace than expected. This would translate into a longer period of low inflation, which means that inflation should not move into positive territory before the second half of 2017. This morning, EUR/CHF continued to trade lower after hitting 1.10 on Wednesday as investors rushed from riskier assets for the safety of gold and the CHF.

Russia: CBR has an opportunity to cut its key rate

The ruble has continued to appreciate ever since it reached its all-time low against the dollar in early January. At that time, more than 82 ruble could be exchanged for a single dollar note. Now, the USDRUB has weakened below 65 and even more upside pressures on the currency continue as the rebound in oil prices persists. The outlook for Russian oil revenues is more positive despite the global supply glut. Expectations for increased oil demand over the coming years and the fear of peak oil are driving the black commodity’s prices higher.

We still believe however that the ongoing RUB’s flight is of concern in the medium-term as exports will likely suffer further. Yet, the oil rebound is partially offset by a stronger currency. As a result, the Central Bank of Russia may indeed attempt to weaken the ruble by lowering its key rate to 10.50% today as we firmly believe that current ruble levels represent an opportunity to normalize monetary policy. The adverse effect on inflation will be, in any case, offset by the stronger currency and higher oil prices.

Inflation, which is being closely scrutinized, is currently above 7% y/y, which is still of concern. Certainly, keeping a double-digit key rate does not help the situation. Long-term investments are bearing the brunt of this rate and the premiums required for an investment to be profitable are, as a result, very high.

Our view on the USDRUB is bearish. The dollar should drive the pair even lower as the dovish stance of the Federal Reserve reveals the true, underlying difficulties of the US economy. 60 ruble for one dollar represents our 3-month target.

USD/CAD - Bearish Move Won't End Soon.

Today's Key Issues	Country/GMT
Mar Unemployment Rate SA, last 3,50%	DKK/07:00
Mar Unemployment Rate Gross Rate, last 4,30%	DKK/07:00
Mar Trade Balance, exp -5.00b, last -3.17b, rev -3.19b	TRY/07:00
Apr KOF Leading Indicator, exp 102,5, last 102,5, rev 102,8	CHF/07:00
1Q P GDP QoQ, exp 0,70%, last 0,80%	EUR/07:00
1Q P GDP YoY, exp 3,30%, last 3,50%	EUR/07:00
Feb Wages Non-Manual Workers YoY	SEK/07:30
January and February Wages will be released on the same day.	SEK/07:30
BOE's Gracie Speaks at SRB Conference in Brussels	GBP/07:30
SNB's Thomas Jordan Speaks at Annual General Meeting in Bern	CHF/08:00
Apr 22 Money Supply Narrow Def, last 8.51t	RUB/08:00
Apr Unemployment Rate, exp 3,30%, last 3,30%	NOK/08:00
Feb Current Account Balance, last -0.7b	EUR/08:00
Mar P Unemployment Rate, exp 11,60%, last 11,70%	EUR/08:00
Mar Credit Indicator Growth YoY, exp 5,00%, last 5,20%	NOK/08:00
May Norges Bank Daily FX Purchases, last -900m	NOK/08:00
Norges Bank Regional Phone Survey	NOK/08:00
Mar Net Lending Sec. on Dwellings, exp 3.7b, last 3.6b	GBP/08:30
Mar Mortgage Approvals, exp 74.2k, last 73.9k	GBP/08:30
Mar Money Supply M4 MoM, last 0,90%	GBP/08:30
Mar M4 Money Supply YoY, last 2,00%	GBP/08:30
Mar M4 Ex IOFCs 3M Annualised, exp 6,00%, last 5,00%	GBP/08:30
Mar Unemployment Rate, exp 10,30%, last 10,30%	EUR/09:00
Apr CPI Estimate YoY, exp -0,10%	EUR/09:00
Apr A CPI Core YoY, exp 0,90%, last 1,00%	EUR/09:00
1Q A GDP SA QoQ, exp 0,40%, last 0,30%	EUR/09:00
1Q A GDP SA YoY, exp 1,40%, last 1,60%	EUR/09:00
ECB Governing Council's Weidmann Speaks in Munich	EUR/09:00
Apr P CPI NIC incl. tobacco MoM, exp 0,20%, last 0,20%	EUR/09:00
Apr P CPI NIC incl. tobacco YoY, exp -0,20%, last -0,20%	EUR/09:00
Apr P CPI EU Harmonized MoM, exp 0,50%, last 2,00%, rev 2,10%	EUR/09:00
Apr P CPI EU Harmonized YoY, exp -0,10%, last -0,20%	EUR/09:00
Mar PPI MoM, last -0,50%	EUR/10:00
Mar PPI YoY, last -4,10%	EUR/10:00
Apr 29 Key Rate, exp 11,00%, last 11,00%	RUB/10:30
Fed's Robert Kaplan Speaks in London at Monetary Forum	USD/10:30
Mar Trade Balance Rand, exp -1.9b, last -1.1b	ZAR/12:00
Mar South Africa Budget, exp 4.79b, last 16.39b	ZAR/12:00
Mar National Unemployment Rate, exp 10,70%, last 10,20%	BRL/12:00
BOE Deputy Governor Cunliffe Speaks at SRB Conference	GBP/12:00
Mar PPI Manufacturing MoM, last -0,57%	BRL/12:00
Mar PPI Manufacturing YoY, last 9,70%	BRL/12:00
1Q Employment Cost Index, exp 0,60%, last 0,60%	USD/12:30
Mar Personal Income, exp 0,30%, last 0,20%	USD/12:30
Mar Industrial Product Price MoM, exp 0,50%, last -1,10%	CAD/12:30
Mar Personal Spending, exp 0,20%, last 0,10%	USD/12:30
Mar Raw Materials Price Index MoM, exp 3,70%, last -2,60%	CAD/12:30
Mar Real Personal Spending, exp 0,10%, last 0,20%	USD/12:30
Feb GDP MoM, exp -0,20%, last 0,60%	CAD/12:30
Mar PCE Deflator MoM, exp 0,10%, last -0,10%	USD/12:30
Feb GDP YoY, exp 1,50%, last 1,50%	CAD/12:30
Mar PCE Deflator YoY, exp 0,80%, last 1,00%	USD/12:30
Mar PCE Core MoM, exp 0,10%, last 0,10%	USD/12:30
Mar PCE Core YoY, exp 1,60%, last 1,70%	USD/12:30
Apr ISM Milwaukee, last 57,78	USD/13:00
Mar Primary Budget Balance, exp -9.5b, last -23.0b	BRL/13:30
Mar Nominal Budget Balance, exp -11.7b, last -52.8b	BRL/13:30
Mar Net Debt % GDP, exp 38,10%, last 36,80%	BRL/13:30
Apr Chicago Purchasing Manager, exp 52,6, last 53,6	USD/13:45
Revisions: Retail Sales	USD/14:00
Apr F U. of Mich. Sentiment, exp 90, last 89,7	USD/14:00
Apr F U. of Mich. Current Conditions, last 105,4	USD/14:00
Apr F U. of Mich. Expectations, last 79,6	USD/14:00
Apr F U. of Mich. 1 Yr Inflation, last 2,70%	USD/14:00
Apr F U. of Mich. 5-10 Yr Inflation, last 2,50%	USD/14:00
Mar Leading Index, last 99	CNY/22:00
Mar Eight Infrastructure Industries, last 5,70%	INR/22:00
Australia's Budget Deficit Estimated A$35b	AUD/22:00

 

 

The Risk Today

Yann Quelenn

EUR/USD has exited downtrend channel. Hourly support is located at 1.1217 (25/041/2016 low) and stronger support can be found at 1.1144 (24/03/2016 low). Hourly resistance can be found at 1.1465 (12/04/2016 high). Expected to show further move towards resistance at 1.1465. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1746 ( holds. Key resistance is located at 1.1640 (11/11/2005 low). The current technical appreciation implies a gradual increase.

GBP/USD has failed at the moment to reach resistance at 1.4668 (04/02/2016 high). Hourly support is given at 1.4475 (27/04/2016 high). Expected to show further another upside move toward resistance at 1.4668 (04/02/2016 high). The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 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 keeps on declining after BoJ rate decision. The pair has broken hourly support at 107.68 (07/04/2016 low). Resistance can be found at 111.88 (28/04/2016 high). Expected to show continued weakness. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USD/CHF has exited short-term downtrend channel and is now monitoring support at 0.9585 (19/04/2016 low). Hourly support can be found at 0.9499 (12/04/2016 low). Expected to show further increase. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.

 

Resistance and Support:

EURUSD	GBPUSD	USDCHF	USDJPY
1.257	1.5242	1.0328	113.8
1.1714	1.4969	1.0093	112.68
1.1465	1.4668	0.9913	111.91
1.1385	1.4591	0.9629	107.02
1.1217	1.43	0.9476	105.23
1.1144	1.4132	0.9259	100.82
1.1058	1.4006	0.9072	96.57