Politics front and center

Forex News and Events

Busy week for the Fed (by Yann Quelenn)

No less than seven Fed members will speak this week, including Janet Yellen on Friday. Financial markets are expecting that like last year, policymakers will hint more strongly about a December rate hike, which is now priced at around 65%. In terms of data, the week is also well loaded with some major events. September FOMC meeting minutes will be released this Wednesday but there should not be any surprise on that front and the tone should remain hawkish. On Friday, September retail sales will be widely awaited and the consensus is for a strong print, driven by the iPhone 7 release.

What remains concerning and what the Fed will be questioned on, is why has it decided to now raise rates while inflation expectations are diving further into negative territory. From our vantage point, a (likely) December rate hike will be done simply to boost the central bank's credibility. Labour data has often been a strong point in the Fed’s arguments to raise rates. Last Friday’s NFP is only hiding the fact that despite it coming in around the August release figure, 156k vs 151k, the unemployment rate increased to 5%. The Fed’s dual mandate, low unemployment and price stability, looks at stake.

Currency-wise, the demand for dollar seems still strong. Only another disappointment from the Fed could send the EURUSD higher. We do not see a major move before year-end on the pair. The Fed is almost certain to raise rates.

Currency remain sensitive to politics

US presidential debate failed to discuss in earnest any real topics of relevance to FX markets. Issues such as trade, taxations and energy policy all were background noise to the accusations and mud-slinging. As a result there were no big moves despite currencies heighted sensitivity. USDJPY did gap higher as Republican presidential nominee Trump seemed to hold this ground after a very difficult 72hrs. Our US election cycle basket of long MXN, CAD, CNY and short USD and JPY was basically unchanged. Election risk premium has increased in recent weeks causing FX volatility to steadily trade higher. The Mexican peso continued to show the higher correlation to US election developments.

GBP calm could see short-term rally

While the sentiment around the GBP remains weak, price action is consolidating. We continue to expect a marginal recovery in the GBP as calmer head prevail. In addition the weaker GBP will offer some support for UK manufacturing offsetting potential softness in domestic demand. Resiliency in UK economic conditions will help the GBP positioning improve. Finally, Autumn Statement on the 23rd November should provide more details about fiscal stimulus. This week the focus will remain on Brexit related developments. On Thursday the UK High Court will hear argument that the UK government must get parliament’s approval before triggering Article 50. Elsewhere with a number of ECB members scheduled to speak over the next few day we should continue to hear the banks views on economic effect of Brexit and potential for change in ECB policy. Outside of Brexit, we continue to expect an overall dovish tone indicate that a December QE extension is likely. Tactical GBP trader should watch for a EURGBP break of 0.9000 for a quick extension to 0.8965 then 0.8826.

 

Today's Key Issues	Country/GMT
Sep CPI MoM, exp 0,60%, last -0,50%	NOK/06:00
Sep CPI YoY, exp 4,00%, last 4,00%	NOK/06:00
Sep CPI Underlying MoM, exp 0,70%, last -0,50%	NOK/06:00
Sep CPI Underlying YoY, exp 3,20%, last 3,30%	NOK/06:00
Sep PPI including Oil MoM, last -1,80%	NOK/06:00
Sep PPI including Oil YoY, last -4,70%	NOK/06:00
SEB Swedish Housing Price Indicator	SEK/06:30
Aug Current Account (Seasonally Adjusted), last 1,21E+10, rev 1,61E+10	DKK/07:00
Aug Trade Balance ex Ships, exp 7,50E+09, last 8,20E+09, rev 7,80E+09	DKK/07:00
Sep CPI MoM, exp 0,30%, last -0,30%	DKK/07:00
Sep CPI YoY, exp 0,30%, last 0,20%	DKK/07:00
Sep CPI EU Harmonized MoM, exp 0,20%, last -0,40%	DKK/07:00
Sep CPI EU Harmonized YoY, exp 0,10%, last 0,00%	DKK/07:00
Aug Household Consumption (MoM), last -0,10%	SEK/07:30
Aug Household Consumption (YoY), last 2,30%	SEK/07:30
07.oct. Total Sight Deposits, last 5,17E+11	CHF/08:00
07.oct. Domestic Sight Deposits, last 4,53E+11	CHF/08:00
Oct Sentix Investor Confidence, exp 6, last 5,6	EUR/08:30
Sep Card Spending Retail MoM, exp 0,80%, last -0,40%	NZD/21:45
Sep Card Spending Total MoM, last -0,80%	NZD/21:45
3Q Real Estate Index Family Homes, last 452,2	CHF/22:00

 

The Risk Today

Peter Rosenstreich

EUR/USD has failed to erase support at 1.1123. Yet, a further decline towards the support at 1.1046 favoured as long as prices remain below the resistance at 1.1288 (declining trendline). Strong support can be found at 1.1046 (05/08/2016 low). In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.

GBP/USD has collapsed in Asia trading last Friday, with reports of 1.14 lows but is now consolidating around the 1.2424 handle. Resistance is located at 1.2620 (declining trendline) then 1.2873 (03/10/2016). Support base is now building at 1.2228 (07/10/2016 low). Expected to show continued downside pressures. 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 bounced around to bounce around resistance given at 104.32 (02/09/2016 high).The ongoing momentum is mixed. Hourly support is located at 102.81 (10/10/2016 low) and 102.75 (05/10/2016). 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 keeps on increasing slightly since September 15. Key resistance lies at 0.9950 (27/07/2016 high). Support can be located at 0.9733 (05/10/2016 base) then 0.9632 (26/08/2016 base low). 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.

Resistance and Support:

EURUSD	GBPUSD	USDCHF	USDJPY
1.1616	1.3445	1.0093	107.9
1.1479	1.3121	0.9956	105.63
1.1428	1.2857	0.9885	104.32
1.1128	1.2429	0.9814	103.83
1.1046	1.2352	0.9522	99.02
1.0913	1.1841	0.9444	96.57
1.0822	1.052	0.9259	93.79