Arnaud Masset
Swissquote Bank Ltd
Forex News and Events
China’s economy bounces back (by Arnaud Masset)
The Chinese economy started the year on the back foot as the both manufacturing and services sectors showed some signs of sever slowdown, raising concerns about the ability of the world’s second largest economy to switch toward a domestic generated growth from an export driven one. Nevertheless, since the second quarter, the economy has been sending some positive signals, suggesting that the downside adjustment is underway. Industrial output grew 6.3%y/y in August, beating median forecast of 6.2% and above July’s reading of 6.0%. Retail sales also beat expectations as it expanded 10.6%y/y versus 10.2% median forecast and previous reading. Finally, fixed asset investment surged 8.1% since the beginning of the year, while foreign direct investment jumped 5.7% in August compared to 4.5% consensus.
All in all, the last batch of economic data suggest that the worst is behind us; however there are still serious issue to be addressed in the long-term, especially the massive overcapacity in many industries, the continued slowdown of the export sector and the weakness of domestic consumption. An accommodative policy stance, both on the monetary and fiscal side, is still more than relevant in light of the upcoming challenges.
Risk rallies on (by Peter Rosenstreich)
Lots of nervous chatter flooded the wires as Fridays sharp correction had many predicating the end of the 10 year Bull Run. We have to admit that Fed Rosengren unexpectedly hawkish comments and resulting surge in volatility and collapse of stock prices has us thinking that the bubble had finally popped. However, cooler analyst heads prevailed as the realization that no structural change had transpired. Without such a shift our dominate thesis that ultra-lose monetary policy will unconditionally support risk taking remains unchanged. Our view was quickly reinforced by Fed Brainards dovish comments and recovery in global equity prices. On a side note, thank god for the Fed communication blackout now in effect so that we do not have to suffer though rogues waves of volatility. Moving forward our base scenario is that US economic data and global environment remains too uncertain for further a September rate hike. However, should the 20% probably of a 25bp hike prove to be correct, this also will have a limited effect in lowering risk appetite as it is likely the Fed path will flatten (one and done till next year cycle continues). We remain confidently constructive in EM currencies, Gold and US equities and see current selling as an opportunity to reload shorts. We also anticipate the rally US yields is unsustainable as the trillion currently investing in negative yield paper will thankfully flood back into the US on any rate rise. Looking forward we see only the US elections as a potential catalyst to bring about an end to the good times.
Hawkish one day, dovish the next (by Yann Quelenn)
The US equities market declined sharply on Friday on the back of Fed Rosengren’s very hawkish comments. We believe this move was a mistake. In our view, the central bank does not have the ability to raise rates as its massive debt holds it back. Its credibility will continue to deteriorate as long as a rate hike normalization period is not delivered. Last December's small hike was merely an attempt to smooth over the cracks.
Rosengren's hawkish declarations triggered a significant equity sell-off. Yesterday, Fed’s Brainard, Lockhart and Kashkari all played the role of firemen, repeating over and over that patience is the key word and that the job market is not yet strong enough. Ordinarily, a 4.9% unemployment rate would be looked on very favourably, but with the absence of wage growth, the figures contradict each other. This is why we believe that the jobs market is in fact largely overestimated.
Unsurprisingly, equity markets went up yesterday amid the comments that there is “no hurry” to raise interest rates. The free money tap continues flow with no end in sight at present and markets are now pricing a September rate hike at 22%. Fed communication is mixed, contributing to market volatility while it should be working to ensure price stability. This sounds like another failure from the American Central Bank.
Crude Oil - Volatility Lowers.
| Today's Key Issues | Country/GMT |
|---|---|
| Aug CPI Core MoM, last -0,90%, rev 0,30% | EUR/07:00 |
| Aug CPI Core YoY, exp 0,70%, last 0,70%, rev 0,30% | EUR/07:00 |
| Aug F CPI EU Harmonised MoM, exp 0,00%, last 0,00% | EUR/07:00 |
| Aug F CPI EU Harmonised YoY, exp -0,30%, last -0,30% | EUR/07:00 |
| Aug F CPI MoM, exp 0,10%, last 0,10% | EUR/07:00 |
| Aug F CPI YoY, exp -0,10%, last -0,10% | EUR/07:00 |
| Aug Producer & Import Prices MoM, exp -0,20%, last -0,10% | CHF/07:15 |
| Aug Producer & Import Prices YoY, exp -0,30%, last -0,80% | CHF/07:15 |
| Aug CPI MoM, exp 0,00%, last 0,10% | SEK/07:30 |
| Aug CPI YoY, exp 1,20%, last 1,10% | SEK/07:30 |
| Aug CPI CPIF MoM, exp -0,10%, last 0,10% | SEK/07:30 |
| Aug CPI CPIF YoY, exp 1,50%, last 1,40% | SEK/07:30 |
| Aug CPI Level, exp 316,61, last 316,73 | SEK/07:30 |
| Jul Industrial Production MoM, exp 0,20%, last -0,40% | EUR/08:00 |
| Jul Industrial Production WDA YoY, exp -0,90%, last -1,00% | EUR/08:00 |
| Jul Industrial Production NSA YoY, last -1,00% | EUR/08:00 |
| 2Q Current Account as a % GDP, exp -3,00%, last -5,00% | ZAR/08:00 |
| 2Q Current Account Balance, exp -129b, last -211b | ZAR/08:00 |
| Aug Region Survey: Output Past 3M, last 0,16 | NOK/08:00 |
| Aug Region Survey: Output Next 6M, last 0,28 | NOK/08:00 |
| sept..07 FIPE CPI - Weekly, exp 0,16%, last -0,03% | BRL/08:00 |
| Aug CPI MoM, exp 0,40%, last -0,10% | GBP/08:30 |
| Aug CPI YoY, exp 0,70%, last 0,60% | GBP/08:30 |
| Aug CPI Core YoY, exp 1,40%, last 1,30% | GBP/08:30 |
| Aug Retail Price Index, exp 264,3, last 263,4 | GBP/08:30 |
| Aug RPI MoM, exp 0,40%, last 0,10% | GBP/08:30 |
| Aug RPI YoY, exp 1,80%, last 1,90% | GBP/08:30 |
| Aug RPI Ex Mort Int.Payments (YoY), exp 1,90%, last 1,90% | GBP/08:30 |
| Aug PPI Input NSA MoM, exp 0,60%, last 3,30% | GBP/08:30 |
| Aug PPI Input NSA YoY, exp 8,20%, last 4,30% | GBP/08:30 |
| Aug PPI Output NSA MoM, exp 0,30%, last 0,30% | GBP/08:30 |
| Aug PPI Output NSA YoY, exp 1,00%, last 0,30% | GBP/08:30 |
| Aug PPI Output Core NSA MoM, exp 0,20%, last 0,40% | GBP/08:30 |
| Aug PPI Output Core NSA YoY, exp 1,30%, last 1,00% | GBP/08:30 |
| Jul House Price Index YoY, last 8,70% | GBP/08:30 |
| 2Q Employment QoQ, last 0,30% | EUR/09:00 |
| 2Q Employment YoY, last 1,40% | EUR/09:00 |
| Sep ZEW Survey Current Situation, exp 56, last 57,6 | EUR/09:00 |
| Sep ZEW Survey Expectations, exp 2,5, last 0,5 | EUR/09:00 |
| Sep ZEW Survey Expectations, last 4,6 | EUR/09:00 |
| ECB's Draghi Receives | EUR/09:00 |
| BOE Indexed Long-Term Repo Operation Results | GBP/09:40 |
| Aug NFIB Small Business Optimism, exp 94,8, last 94,6 | USD/10:00 |
| ECB's Nowotny, BIS's Caruana Speak at OeNB/BIS Conference | EUR/12:00 |
| Jul Retail Sales MoM, exp -0,20%, last 0,10% | BRL/12:00 |
| Jul Retail Sales YoY, exp -5,00%, last -5,30% | BRL/12:00 |
| Jul Retail Sales Broad MoM, exp 0,80%, last -0,20% | BRL/12:00 |
| Jul Retail Sales Broad YoY, exp -8,20%, last -8,40% | BRL/12:00 |
| Riksbank's Skingsley Speaks at OeNB/BIS Conference | SEK/12:15 |
| Sweden's Riksbank Deputy Governor Skingsley Speaks | SEK/12:30 |
| Bank of England Bond-Buying Operation Results | GBP/13:50 |
| Bank of Argentina's Sturzenegger, PBOC's Yi Speak in Vienna | ARS/14:15 |
| Aug Monthly Budget Statement, exp -$107.0b, last -$64.4b | USD/18:00 |
| Lautenschläger Speaks in Strasbourg | EUR/18:00 |
| Aug REINZ House Sales YoY, last -10,10% | NZD/21:30 |
| Aug New Yuan Loans CNY, exp 750.0b, last 463.6b | CNY/22:00 |
| Aug Aggregate Financing CNY, exp 900.0b, last 487.9b | CNY/22:00 |
| Aug Money Supply M0 YoY, exp 7,30%, last 7,20% | CNY/22:00 |
| Aug Money Supply M1 YoY, exp 24,00%, last 25,40% | CNY/22:00 |
| Aug Money Supply M2 YoY, exp 10,50%, last 10,20% | CNY/22:00 |
| Jul Federal Debt Total, last 2959b | BRL/22:00 |
| 2Q BoP Current Account Balance, exp $2.65b, last -$0.30b | INR/22:00 |
| Aug Trade Balance, exp -$7000.0m, last -$7761.4m | INR/22:00 |
| Aug Imports YoY, last -19,00% | INR/22:00 |
| Aug Exports YoY, last -6,80% | INR/22:00 |
| OeNB/BIS conference on central banking in Vienna | USD/22:00 |
The Risk Today
Yann Quelenn
EUR/USD is trading mixed since the recent increase from hourly support given at 1.1123 (31/08/2016 low). Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). 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 is moving higher within uptrend channel. Hourly resistance is given at 1.3445 (06/09/2016 high). Key resistance is given at 1.3534 (29/06/2016 high). Hourly support is given at 1.3236 (12/09/2016 low). Expected to further increase. 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 is edging lower. Strong resistance can be found at 104.32 (02/09/2016 high). Hourly support is given at 101.21 (07/09/2016 low). A key support lies at 99.02 (24/06/2016 low). We favour a further bearish bias. We favour 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 medium term momentum is clearly mixed. There are periods of strong and low volatility and the pair seems without direction. Support at 0.9739 (02/09/2016 low) has been broken. Hourly resistance is given at 0.9885 (01/09/2016 high). Next resistance lies at 0.9956 (30/05/2016 high). Expected to further weaken. 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.
| EURUSD | GBPUSD | USDCHF | USDJPY |
| 1.1616 | 1.3981 | 1.0093 | 107.9 |
| 1.1479 | 1.3534 | 0.9956 | 105.63 |
| 1.1428 | 1.3481 | 0.9885 | 104.32 |
| 1.123 | 1.3293 | 0.9728 | 101.89 |
| 1.1046 | 1.3024 | 0.9522 | 99.02 |
| 1.0913 | 1.2851 | 0.9444 | 96.57 |
| 1.0822 | 1.2798 | 0.9259 | 93.79 |
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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