Swiss FX reserves surge

Forex News and Events

Swiss FX reserves hit record level (by Arnaud Masset)

The foreign exchange reserves of the Swiss national Bank rose by CHF 17.6 billion in November to CHF 648 billion, setting a new record. During the month of October, the variation was more subdued as it increased by CHF 2.4 billion to CHF 630.4 billion. In spite of the solid increase in reserves, it is hard to assess the size of the SNB intervention - even though domestic side deposits within the central bank increased by roughly CHF 11bn in November - due to valuation effects. Indeed, in November, the Swiss franc fell roughly 2.5% against the US dollar, 5% against the pound sterling but rose 0.80% against the single currency. Excluding the valuation effect, we estimate that the reserves increase by roughly CHF 10bn in November, suggesting that SNB was indeed active in the FX market to stabilise the Swiss franc. The period around the US elections have seen some sharp movements in the FX markets was increased investors’ propensity to seek safe haven assets. More specifically, the mounting political uncertainty in the Euro zone, which will remain the main driver for 2017, will keep the SNB on its toes.

Scope for EURUSD rally (by Peter Rosenstreich)

Without a catalyst USD is having a hard time moving higher. US front end yields are now moving sideways as most of the Fed tightening for 2017 is already priced in. Watch USD rally to shift into a range with a skew towards weakness in the next two months (prior to Jan 20th). In addition, volatility is generally declining, suggesting that trading high yields and beta EM currencies, against USD remains attractive. Today European and German industrial production will be released: Yesterday’s strong order suggests an upside risk to 0.6% m/m forecast. This is further indication that outside of political risk European economic recovery remains healthy. This increases the probability that at the ECB meeting Draghi will begin discussing policy without QE. Any hint of the ECB pivoting towards normalization will give EUR a boost.

Optics Matter, Buy CNY?

Today's release of China FX reserve should indicate approx. 40-$60bn outflows as expectations of USD strength grows and the war of words between Trump and China heat up. Yet despite the fall USDCNY fix has been weaker suggesting that the PBoC is involved. We suspect the China central bank has been intervening to dissuade outflows through micro adjustment including pushing up offshore borrowing rates. Heading into the US Presidential inauguration and expectation for Trump to label China a currency manipulator we anticipate that the PBoC will hold USDCNY stable or we may even see a slight depreciation in order to provide the appearance of fairness.

GBP upside

The complexity of Brexit remains a stumbling block for the UK and will continue to generate rogue sources of volatility. However quietly in the backdrop the UK remains strong. Expectations for a contraction in consumer spending due to a decrease in GBP buying power has not materialized, nor direr predictions. We would buy GBP on drips on the domestic story and on the back of growing expectations of a "soft”, "one foot in one foot out" Brexit.

Crude Oil - Profit-Taking.

 

Today's Key Issues	Country/GMT
Oct Industrial Production MoM, last -8,10%, rev -7,00%	DKK/08:00
Nov Foreign Currency Reserves, last 630.3b, rev 630.4b	CHF/08:00
3Q INE House Price Index QoQ, last 1,80%	EUR/08:00
3Q INE House Price Index YoY, last 3,90%	EUR/08:00
Nov Foreign Reserves, exp $3060.7b, last $3120.7b	CNY/08:03
Nov Budget Balance, last -15.8b	SEK/08:30
Nov Halifax House Prices MoM, exp 0,20%, last 1,40%, rev 1,50%	GBP/08:30
Nov Halifax House Price 3Mths/Year, exp 5,90%, last 5,20%	GBP/08:30
3Q Unemployment Rate Quarterly, exp 11,60%, last 11,50%, rev 11,60%	EUR/09:00
Dec 7 RBI Repurchase Rate, exp 6,00%, last 6,25%	INR/09:00
Dec 7 RBI Reverse Repo Rate, exp 5,50%, last 5,75%	INR/09:00
Oct Industrial Production MoM, exp 0,20%, last -0,40%	GBP/09:30
Oct Industrial Production YoY, exp 0,50%, last 0,30%, rev 0,40%	GBP/09:30
Oct Manufacturing Production MoM, exp 0,20%, last 0,60%	GBP/09:30
Oct Manufacturing Production YoY, exp 0,70%, last 0,20%, rev 0,10%	GBP/09:30
Nov SACCI Business Confidence, last 93	ZAR/09:30
Nov FGV Inflation IGP-DI MoM, exp 0,00%, last 0,13%	BRL/10:00
Nov FGV Inflation IGP-DI YoY, exp 6,74%, last 7,99%	BRL/10:00
Bank of Italy Report on Balance-Sheet Aggregates	EUR/10:00
Dec 2 MBA Mortgage Applications, last -9,40%	USD/12:00
Dec 5 CPI Weekly YTD, last 5,00%	RUB/13:00
Dec 5 CPI WoW, last 0,10%	RUB/13:00
Nov Official Reserve Assets, exp 390.0b, last 390.7b	RUB/13:00
Currency Flows Weekly	BRL/14:30
Bank of England Bond Buying Operation	GBP/14:50
Dec 7 Bank of Canada Rate Decision, exp 0,50%, last 0,50%	CAD/15:00
Nov NIESR GDP Estimate, exp 0,40%, last 0,40%	GBP/15:00
Oct JOLTS Job Openings, exp 5500, last 5486	USD/15:00
Dec 2 DOE U.S. Crude Oil Inventories, exp -1500k, last -884k	USD/15:30
Dec 2 DOE Cushing OK Crude Inventory, exp 256k, last 2419k	USD/15:30
Oct Consumer Credit, exp $18.650b, last $19.292b	USD/20:00
RBNZ's Wheeler Speaks in Greymouth	NZD/21:00
Nov Commodity Price Index MoM, last 0,10%	BRL/23:00
Nov Commodity Price Index YoY, last -14,42%	BRL/23:00
3Q BoP Current Account Balance, last -$0.30b	INR/23:00

 

The Risk Today

Yann Quelenn

EUR/USD is pushing higher ahead of the ECB meeting next Thursday. Hourly resistance is given at 1.0796 (05/12/2016 high). Support can be found at 1.0506 (05/12/2016 low). Bearish pressures seem to increase around 1.0800. Expected to show further weakness. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support given at 1.0458 (16/03/2015 low) is on target.

GBP/USD is bouncing back from hourly resistance at 1.2771 (05/10/2016 high). Hourly support is given at 1.2302 (18/11/2016 low). Expected to show renewed pressures towards resistance at 1.2771. 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 bullish momentum is definitely on. The pair is now monitoring strong resistance given at 114.87 (16/02/2016 high). Hourly support is given around 111.36 (28/11/2016 low). Stronger support lies at 108.56 (17/11/2016 low). Expected to see another upside move 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 is pushing lower. Key support is given at the parity. Hourly resistance lies at 1.0205 (30/11/2016 high). The road is wide-open for further weakness. 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
1.1300	1.3481	1.1731	125.86
1.1259	1.3121	1.0328	121.69
1.0954	1.2775	1.0257	114.87
1.0729	1.2593	1.0094	114.14
1.0506	1.2302	0.9929	112.88
1.0458	1.2083	0.9632	109.80
1.0000	1.1841	0.9522	108.56