EUR/CHF: SNB On Hold But Dovish

ECONOMIC CALENDAR

EUR/USD lower despite Fed still waiting “considerable time”

(still bullish bias in the medium-term)

• The Fed retained its language and issued updated forecasts for growth, inflation and interest rates.

• The Fed said it intends to keep its benchmark rate near zero as long as inflation remains under control, until it sees consistent gains in wage growth, long-term unemployment and other gauges of the job market. The phrase "it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends" stands. It was approved on an 8-2 vote. FRB Philadelphia's Plosser and FRB Dallas's Fisher dissented in favor of removing the time-dependent language from the forward guidance. 

• The median short-term rate supported by Fed policymakers at the end of 2015 is now 1.38%, up from 1.13% at its June meeting, while the end-2016 projection moved up to 2.88% from 2.50%. For 2017, the median stood at 3.75%. Fed Chair Janet Yellen said: “I would say there is relatively little upward movement in the federal funds rate path (…) I would view it as broadly in line with what one would expect with a very small downward reduction in the path for unemployment and a very slight upward change in the projection for inflation.”

• Fed policymakers expect the economy to grow 2% to 2.2% this year, down from their June forecast of 2.1% to 2.3%. Policymakers forecast growth of 2.6% to 3% in 2015, down from an earlier forecast of 3% to 3.2%.

• In the opinion of GrowthAces.com there are some inconsistencies between the statement and the projection materials. The ‘considerable time' language in the statement was retained, but we are less than four months removed from 2015, when 14 of the 17 participants view it is appropriate to begin policy tightening. That is why the statement should be interpreted rather as dovish, especially since market expectations had largely called for revision to the "considerable time" phrasing.

• Consumer prices edged down 0.2% last month following a 0.1% gain in July. CPI increased 1.7% yoy. Core inflation, excluding food and energy prices, was up by the same amount yoy and unchanged mom, marking a slowdown from July's 1.9%.

• The US current account trade deficit narrowed slightly in the April-June quarter to USD 98.5 bn, down 3.5% from the revised USD 102.1 bn deficit in the January-March period, reflecting gains in exports of oil and civilian aircraft and a bigger surplus in Americans' overseas investment earnings.

• The market ignored the Fed statement which left “considerable time” phrase yesterday and focused on more hawkish Fed predictions. We should note that the Fed will end its quantitative easing next month while the ECB is starting the first round of TLTRO loans. On the other hand we have no fresh news. The EUR/USD fell to a fresh 12-month low at 1.2834 (above the stop-loss of our long position). The rate recovered during Asian session to 1.2900. We keep our medium-term long position with the target of 1.3100.

Significant technical analysis' levels:

Resistance: 1.2928 (200-hma), 1.2982 (high Sep 17), 1.2995 (high Sep 16)

Support: 1.2834 (low Sep 17), 1.2800 (psychological level), 1.2788 (61.8% of 1.2042-1.3995)

GBP/USD: Investors focused on the referendum

(still long, target raised to 1.6510)

• Scotland began voting in a referendum on becoming an independent state. The polling places are opened Thursday at 6:00 GMT and will close at 21:00 GMT. Polls suggest the result is too close to call. The result is expected to come early Friday morning.

• The Ipsos Mori poll for the London Evening Standard newspaper put support for staying within the United Kingdom at 53%, with support for independence at 47%.

• Retail sales were up 3.9% in August, slightly lower than forecasts of a 4.1% rise but higher than 2.5% in the previous month. The economic data are overshadowed by the referendum on Scottish independence but the GBP/USD eased slightly after the release.

• The volatility of the GBP/USD was high yesterday. The rate broke above the resistance at 1.6349 (50% of 1.6645-1.6032) and made us raised our target to 1.6510, reached a day’s high at 1.6357 but fell after the Fed’s statement below 1.6250. The GBP recovered during Asian session and now is back the area of 1.6330.

Significant technical analysis' levels:

Resistance: 1.6358 (high Sep 17), 1.6392 (21-dma), 1.6418 (61.8% of 1.6645-1.6052)

Support: 1.6247 (hourly low Sep 18), 1.6234 (10-dma), 1.6162 (low Sep 16)

USD/JPY jumped well above 108.00, outlook still bullish

(looking to go long again on dips)

• Japan's trade deficit in August stood at JPY 948.5 bn. Exports fell 1.3% yoy in August as shipments to the United States contracted. A fall was lower than the median estimate for a 2.6% yoy decline and followed a 3.9% yoy gain in the previous month. Imports fell 1.5% yoy in August, more than the median forecast for a 1.2% yoy decline, as energy imports declined.

• The sentiment index for manufacturers fell to 10 in September from 20 in August.
  Confidence at Japanese manufacturers fell the most in nearly two years in September as a tax increase hit the economy harder than expected. It was the first decline in four months and the biggest since October 2012. The third quarter data will be crucial for Abe's second-stage tax-rise decision, due by year-end.

• The USD/JPY jumped well above 108.00 yesterday. We have taken huge profit on our long position (104.90-108.00), however the USD/JPY rally was even stronger than we had assumed. The USD/JPY went up to 108.69 before easing back for a while to 108.37 on better-than-expected Japanese exports data and profit taking. The market is strongly bullish. Technical situation points to further gains, tenkan and kijun lines are positively aligned, and the next target is at 110.00. We will be looking to go long again on dips.

Significant technical analysis' levels:

Resistance: 108.87 (2014 high), 109.00 (psychological level), 109.08 (high Sep 8, 2008)

Support: 108.32 (session low Sep 18), 107.92 (hourly low Sep 17), 107.10 (low Sep 17)

EUR/CHF: No change in the SNB policy, but statement dovish

(we went long, the target is 1.2160)

• The SNB today left its target range for three-month Libor at 0%-0.25. The central bank said it would make unlimited currency interventions and stood ready to take more steps "immediately" if needed to defend the three-year-old cap at 1.20 per euro. The fact that they have added the word "immediately" means a possibility of an action between their official statements (the next one is scheduled for December).

• There was no mention of applying a negative interest rate to commercial banks’ reserves despite recent hints from the central bank that this was an option.

• The Bank struck a very dovish tone. It said the risk of deflation had increased again and cut its inflation forecasts for 2015 and 2016 to 0.2% and 0.5% respectively. It trimmed its growth forecast for this year to just below 1.5% from a previous prediction of near 2%.

• The CHF rose to a one-week high against the EUR after the Swiss National Bank refrained from steps to weaken the currency. The EUR/CHF fell to 1.2065, having traded at 1.2112 before the SNB statement.

• In the opinion of GrowthAces.com current levels of the EUR/CHF justify going long. We went long at 1.2085 with the target of 1.2160 and stop-loss at 1.2045.