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Fitch downgrades Turkey, US data on the soft side

Forex News and Events

Double whammy for Turkey (by Arnaud Masset)

On Friday, Fitch downgraded Turkey’s sovereign debt to junk, while Standard & Poor’s cut its outlook for the country “from stable” to “negative”. S&P already cut Turkey two notches below the investment grade threshold back in November last year, while Moody’s downgraded it to junk last September. Fitch was therefore the last agency to offer an investment grade. In a statement on Friday, Fitch explained its motive: "Political and security developments have undermined economic performance and institutional independence”. Even though the move was broadly expected, it still sent a negative signal to investors.

The Turkish lira’s reaction was relatively muted as the decision was already priced in. USD/TRY has been moving sideways at around 3.87 as investors are reluctant to increase their short TRY positions. Indeed, the central bank increased its overnight lending rate by 75bps to 9.25% but kept its two other benchmarks unchanged. Right now, the CBT is stuck between a rock and a hard place. We believe that it is doing its best to maintain order itself despite pressure from investors, who want tighter monetary policy, and the government which is pressurising the bank to keep lending rates as low as possible. CBT’s behaviour moving forward will be key in determining the outlook for the lira. Ultimately, the bank will either decide to protect its credibility or to obey the government.

Weak US data but markets are instead focused on Trump (by Yann Quelenn)

US GDP came in on Friday at 1.9% y/y, marking the 11th consecutive year of growth below 3% (estimates were about 2.2%). The decrease in exports, associated with more significant imports, has driven GDP lower. In addition, consumption is somewhat sluggish with a decline.

Markets on Friday ended slightly lower. The S&P 500 closed below 2300 points. Markets remain upbeat about Trump’s plan to stimulate the economy through tax cuts and infrastructure spending. In the latest revelations, Trump stunned this weekend with his selective immigration ban, providing a clearer picture of his aggressive political intent. The dollar has been weakening since the opening last night.

Looking at the markets, we believe that it is unlikely that the Fed will raise rates in the first half of 2017. Data is barely moving markets and Trump's ability to deliver is actually a key factor for the Fed to assess the US economic situation. Inflation is needed in the US and we maintain our view that the US central bank will let it run in order to kill its massive debt. For this reason, we remain bullish EUR/USD over the medium-term.

Silver - Fading Demand On Strong Resistance Area.

silver
Today's Key IssuesCountry/GMT
4Q P GDP QoQ, exp 0,70%, last 0,70%EUR/08:00
4Q P GDP YoY, exp 3,00%, last 3,20%EUR/08:00
Jan KOF Leading Indicator, exp 102,9, last 102,2, rev 102,1CHF/08:00
Nov Wages Non-Manual Workers YoY, last 1,90%SEK/08:30
janv..27 Total Sight Deposits CHF, last 532.3bCHF/09:00
janv..27 Domestic Sight Deposits CHF, last 464.3bCHF/09:00
ECB's Nowotny Briefs Vienna Business Journalists' ClubEUR/09:00
Jan FGV Inflation IGPM MoM, exp 0,70%, last 0,54%BRL/10:00
Jan FGV Inflation IGPM YoY, exp 6,71%, last 7,17%BRL/10:00
Jan Economic Confidence, exp 107,8, last 107,8EUR/10:00
Jan Business Climate Indicator, exp 0,8, last 0,79EUR/10:00
Jan Industrial Confidence, exp 0,2, last 0,1EUR/10:00
Jan Services Confidence, exp 12,7, last 12,9EUR/10:00
Jan F Consumer Confidence, exp -4,9, last -4,9EUR/10:00
Central Bank Weekly Economists Survey (Table)BRL/10:25
Dec South Africa Budget, last -16.33bZAR/12:00
Jan P CPI YoY, exp 2,00%, last 1,70%EUR/13:00
Jan P CPI MoM, exp -0,50%, last 0,70%EUR/13:00
Jan P CPI EU Harmonized MoM, exp -0,70%, last 1,00%EUR/13:00
Jan P CPI EU Harmonized YoY, exp 2,00%, last 1,70%EUR/13:00
ABRAS December Supermarket SalesBRL/13:00
Dec Personal Income, exp 0,40%, last 0,00%USD/13:30
Dec Personal Spending, exp 0,50%, last 0,20%USD/13:30
Dec Real Personal Spending, exp 0,30%, last 0,10%USD/13:30
Dec PCE Deflator MoM, exp 0,20%, last 0,00%USD/13:30
Dec PCE Deflator YoY, exp 1,70%, last 1,40%USD/13:30
Dec PCE Core MoM, exp 0,10%, last 0,00%USD/13:30
Dec PCE Core YoY, exp 1,70%, last 1,60%USD/13:30
janv..27 Bloomberg Nanos Confidence, last 56,4CAD/15:00
Dec Pending Home Sales MoM, exp 1,10%, last -2,50%USD/15:00
Dec Pending Home Sales NSA YoY, last 1,40%USD/15:00
Jan Dallas Fed Manf. Activity, exp 15, last 15,5USD/15:30
Dec Central Govt Budget Balance, exp -68.7b, last -38.4bBRL/16:30
Dec Net Migration SA, last 6220NZD/21:45
janv..29 ANZ Roy Morgan Weekly Consumer Confidence Index, last 117AUD/22:30

The Risk Today

Yann Quelenn

EUR/USD's momentum is still largely positive despite ongoing bearish consolidation. Hourly resistance area is given at around 1.0800. Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 low). Expected to see continued increase towards 1.0800. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD's demand has largely increased towards 1.2771 fading around 1.2550. The technical structure is still anyway showing positive potential. Hourly support is given at 1.2254 (19/01/2016 low). Expected to show further bullish move. 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 has surprisingly exited the downtrend channel after monitoring resistance implied by the upper bound. Hourly resistance is given at 115.62 (19/01/2016 high) while hourly support is given at 111.36 (28/11/2016 low). Expected to see further downside moves. 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's momentum is bearish. Yet, the selling pressures are being reduced below parity. Key resistance is given at a distance at 1.0344 (15/12/2016 high). The road is nonetheless wide-open for further decline. 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.

EURUSDGBPUSDUSDCHFUSDJPY
1.131.31211.1731125.86
1.09541.27751.0652121.69
1.08741.27281.0344118.66
1.06961.25250.9986114.67
1.03411.22540.9929112.57
11.19860.9632111.36
0.96131.18410.9522101.2

Author

Arnaud Masset

Arnaud Masset

Swissquote Bank Ltd

Arnaud Masset is a Market Analyst at Swissquote Bank. He has a strong technical background and also works in the development of quantitative trading strategies.

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