Swiss exports plunge, USD extends gains

Forex News and Events

Swiss exports correct to the downside (by Arnaud Masset)

After surging to record level in the month of December (+9.7%m/m), Swiss exports contracted significantly in January, sliding 4%m/m in real term. Despite the fact that it is no good news for the Swiss economy, it is a normal adjustment to us, especially after such a strong growth in December. Looking at the details of the report, one notice that the split among industries is quite uneven. The pharmaceutical and chemical industry had a solid month with exports rising to a record of CHF 9bn (+17%y/y). Outside the pharma industry, the picture is not that bright as exports fell 5%m/m, with the watch industry recording one of its worst month (-11%y/y).

Imports kept shrinking in January, falling 5.3%m/m in January after sliding -0.6% in the previous month. All in all, the trade balance reached an all-time high to CHF 4.73bn, the highest level since September 2016. The constantly improving Swiss trade activity is thorn in the foot in the side for the SNB as it is lifting the bank’s foreign exchange reserves. The 12-month trade balance average hit CHF 3.22bn in January, compared to 3.06bn a year ago.

For now, the Swiss franc is still appealing for investors who want to take shelter from the ongoing uncertainty - especially ahead of the parliamentary and presidential elections across EU countries. However, the Swiss economy will continue to suffer from the situation and the outlook is not that great should the political uncertainty in the European Union depreciates further. In spite of the probable intervention of the SNB on the FX market last week, EUR/CHF hit 1.0635 this morning, suggesting that the marginal effect of the intervention dwindles.

Aussie suffers against the dollar ahead of RBA meeting minutes (by Yann Quelenn)

The minutes from the Reserve Bank of Australia finally brought only a small update from the February statement on the Monetary Policy.

The discussions were around the surprising 0.5% contraction in real GDP for the third quarter of 2016. Officials account the decline due to short-term factors such as bad weather, which had a strong impact on the construction sector, and on the coal supply weakness.

What remains concerning for Australian policymakers are the consumption forecasts. Indeed savings rate is not falling and wages growth remains low. We can also learn that uncertainties remain strong regarding labour data. Forecast about the unemployment rate are mixed. Yet there are expectations about better job market conditions which should add upside pressures on inflation.

There were definitely nothing really surprising about those minutes and we continue to believe that the official cash rate will remain unchanged this year. Financial markets are only pricing with a 25% likelihood a rate hike before year-end. As a result markets were slightly disappointed this morning and send the AUD lower again the greenback. We target 0.76 over the next few weeks.

Watching for March hints (by Peter Rosenstreich)

Traders will be watching today's FOMC early February meeting minutes especially vigilantly for any signal of a March interest rate hike. Fed Chair Yellen made it clear in her testimony to the US congress last week that March will be a live meeting. Investors have been pulling in expectations for an earlier rate hike due to an upward surprise in both growth and inflation data. US headline CPI rose 0.6% in January at its fastest pace since Feb 2013, while the annual pace quickened to 2.5%. However, with the real focus in stronger then anticipated inflation, volatile components (gasoline, new car sales and clothing) indicted that part of the price surge will normalise in the coming months. Despite the read clearly in Yellen's discomfort zone (and hawks Lacker and Rosengren's aggressive comments), it is unlikely to force a hike in our view. In broader terms, we suspect that the lack of wage growth suppressed by the low participation rate will keep the Fed from jumping the gun. Fed members will also like to stay prepared to adjust for disruptive incoming fiscal and trade policy. Fed funds are pricing in approximately a 20% hike in March and 47% in June. We remain our outlook for two 25bp increase in 2017 (June and September) and two additional 25bp hike in 2018. This subdued rate path will fail to excite the USD bulls, while giving other nations' central banks time to shift to less accommodating monetary policy and therefore lessening the US yield advantage. Markets will also be reading for hints as to discussion among Fed policymakers about timing on shrinking the Fed’s massive, $3 trillion plus, balance sheet. Traders should watch for USD to firm ahead of report but likely sell off should our outlook materialise.

EUR/CHF - Continued Weakness Around Support Area.

The Risk Today

Yann Quelenn

EUR/USD is back below 1.0600. Hourly resistance is given at 1.0679 (16/02/2017 high) while hourly support can be found at 1.0521 (15/02/2017 low). The technical structure suggests that the current underlying move is a bearish consolidation. 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 is lying within a symmetrical triangle below strong resistance given at 1.2771 (05/10/2016 high). The technical structure suggests that the pair should breakout towards support given at 1.2254 (19/01/2016 low). 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's demand is fading after its increase from support given at 111.36 (28/11/2016 low). Bearish pressures arise around hourly resistance given at 115.62 (19/01/2016 high). The technical structure suggests further weakness. 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 short-term bullish momentum is back to bullish. The pair lies within an uptrend channel. Hourly resistance is implied by upper bound of the uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). We believe that the pair is likely to strengthen again above parity. 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: