Forex News and Events
Limited expectations for ECB (by Peter Rosenstreich)
We have limited expectations for today’s ECB meeting and foresee no change to the policy mix. With the true extent of the Brexit effect still unclear, and the Euro on the weaker side (due to renewed expectations for a September Fed rate hike), the central bank is under no real pressure to act. Draghi will therefore most likely adopt a wait-and-see approach. We expect the meeting and press conference to contain warnings that economic downside risks have grown and that the bank remains ready to ease monetary policy further, if necessary. However, given the softness of growth data and the mounting risks to the inflation outlook, we suspect that the September meeting will announce a time extension of QE. Selling pressures on EURUSD heading into today’s meeting suggest that less dovish Draghi comments could put the pair back to 1.1080, but further upside should be limited.
Turkey downgrade sends TRY lower
Investor concerns over the recent events in Turkey grew overnight as Turkish president Erdogan declared a state of emergency to span the three months following the failed coup. This comes fresh on the heels of news that Erdogan is conducting a mass purge of opposition within the country. Given the political and social turbulence, S&P downgraded Turkey’s unsolicited FX sovereign credit rating to BB outlook negative from BB+ outlook stable. In addition, the S&P dropped its unsolicited local currency rating to BB+ outlook negative from BBB- outlook stable. S&P stated that downgrades were based on concerns that capital inflow will reduce, impeding economic growth. The downgrade will result in exclusion of sovereign debt in select bond indexes and therefore force selling on Turkish bonds. However, it’s been noted that investors depend more on Fitch and Moody’s rating (Moody’s placed Turkey sovereign debt on negative review on July 18th). USDTRY rallied 1.4% to 3.0973 on rolling developments with 10-year CDS widening 15bps. We remain significantly bearish on TRY due to the cyclical damaging effects President Erdogan’s actions will have on Turkey’s economic outlook. Failure of the CBT to address the magnitude of the issue by only cutting 25bp, only amplifies our conviction that USDTRY has significant upside potential. Turkey’s outlook looks gloomy as the country’s already leveraged economy will notably suffer as investors steer clear of this unstable EM trade. In addition should the Fed become even marginally less dovish next week, investors will quickly cut high-risk EM trades. A short-term test of the 3.100 psychological resistance looks likely.
Swiss exports collapse (by Yann Quelenn)
Swiss export data released this morning shows a decline of 3.3 m/m for June, representing a fourth consecutive decline. This could be explained by the increasing demand for CHF ahead of the Brexit vote. The CHF is indeed far too strong to be competitive and so the SNB was consequently obliged to intervene in order to mitigate upside pressures on the currency. Yet, despite this, the swissie continues to remain largely overvalued.
Additional trade data released today includes the trade balance for June, which weakened to CHF 3.55 billion from CHF 3.79 billion on similarly decreasing imports. Indeed Swiss manufacturing production, in particular the luxury industry, has been badly hit with production levels dropping and inputs reduced. Swiss watch exports for example, printed at a worrying -16% y/y for June.
The global slowdown will undoubtedly continue to weigh heavily on the Swiss franc and further SNB action will be required. There is unfortunately no sign of economic respite on the horizon. We remain bearish on the EUR/CHF pair. Yet, the possibility of surprise intervention from the Swiss central bank should not be discounted.
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Silver – Monitoring Support At 19.23.
|Today’s Key Issues||Country / GMT|
|Jun Money Supply M3 YoY, last 2,00%, rev 2,20%||CHF / 07:00|
|May Trade Balance, last -637.3m||EUR / 07:00|
|Bloomberg July South Africa Economic Survey (Table)||ZAR / 07:00|
|Bloomberg July United Kingdom Economic Survey||GBP / 07:30|
|Jun Retail Sales Ex Auto Fuel MoM, exp -0,60%, last 1,00%||GBP / 08:30|
|Jun Retail Sales Ex Auto Fuel YoY, exp 4,80%, last 5,70%||GBP / 08:30|
|Jun Retail Sales Inc Auto Fuel MoM, exp -0,60%, last 0,90%||GBP / 08:30|
|Jun Retail Sales Inc Auto Fuel YoY, exp 5,00%, last 6,00%||GBP / 08:30|
|Jun Public Finances (PSNCR), last 3.4b||GBP / 08:30|
|Jun Central Government NCR, last 6.0b||GBP / 08:30|
|Jun Public Sector Net Borrowing, exp 9.2b, last 9.1b||GBP / 08:30|
|Jun PSNB ex Banking Groups, exp 9.5b, last 9.7b||GBP / 08:30|
|Jul 21 ECB Main Refinancing Rate, exp 0,00%, last 0,00%||EUR / 11:45|
|Jul 21 ECB Deposit Facility Rate, exp -0,40%, last -0,40%||EUR / 11:45|
|Jul 21 ECB Marginal Lending Facility, exp 0,25%, last 0,25%||EUR / 11:45|
|Jul ECB Asset Purchase Target, exp EU80b, last EU80b||EUR / 11:45|
|Bloomberg July Brazil Economic Survey||BRL / 12:00|
|Jul IBGE Inflation IPCA-15 MoM, exp 0,45%, last 0,40%||BRL / 12:00|
|Jul IBGE Inflation IPCA-15 YoY, exp 8,83%, last 8,98%||BRL / 12:00|
|Jun Chicago Fed Nat Activity Index, exp -0,2, last -0,51||USD / 12:30|
|May Wholesale Trade Sales MoM, exp 0,20%, last 0,10%||CAD / 12:30|
|ECB President Draghi Speaks to Press After Rate Decision||EUR / 12:30|
|Jul 16 Initial Jobless Claims, exp 265k, last 254k||USD / 12:30|
|Jul 9 Continuing Claims, exp 2137k, last 2149k||USD / 12:30|
|Jul Philadelphia Fed Business Outlook, exp 4,5, last 4,7||USD / 12:30|
|May FHFA House Price Index MoM, exp 0,40%, last 0,20%||USD / 13:00|
|Jul 15 Gold and Forex Reserve, last 394.7b||RUB / 13:00|
|Jul Bloomberg Economic Expectations, last 41||USD / 13:45|
|Jul 17 Bloomberg Consumer Comfort, last 44,7||USD / 13:45|
|Jun Existing Home Sales, exp 5.48m, last 5.53m||USD / 14:00|
|Jun Existing Home Sales MoM, exp -0,90%, last 1,80%||USD / 14:00|
|Jun Leading Index, exp 0,20%, last -0,20%||USD / 14:00|
|Jul 21 SARB Announce Interest Rate, exp 7,00%, last 7,00%||ZAR / 22:00|
The Risk Today
EURUSD EUR/USD continues to push lower. Hourly support lies at 1.0913 (06/07/2016 low) while hourly resistance is located at 1.1186 (05/07/2016 high). Stronger resistance is given at 1.1479 (06/05/2016 high). Sharp moves do not have to be ruled out as there are still a lot of uncertainties on asset pricing in the market. Expected to show continued weakness. In the longer term, the technical structure favours a very long-term bearish bias 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.
GBPUSD GBP/USD is trading in range. Uncertainties are still important on the market, we absolutely do not rule out further increasing volatility. Expected to show further weakening towards support at 1.2798 (06/07/2016 low). Resistance at 1.3534 (29/06/2016 high) looks far. The long-term technical pattern is negative and favours a further decline as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200-day moving average). Key support at 1.3503 (23/01/2009 low) has been broken and the road is wide open for further decline.
USDJPY USD/JPY keeps on pushing higher. Hourly supports are located at 103.91 (13/07/2016 low) and at 100 (06/07/2016 low). Expected now to keep increasing towards resistance at 107.90 (07/06/2016 high). 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).
USDCHF USD/CHF’s momentum is bullish. The buying pressures seem to prevent the pair to go lower towards hourly support at 0.9764 (14/07/2016 high). Hourly resistance at 0.9894 (12/07/2016 high) has been broken. Expected to continue pushing higher. 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 a long term bullish bias since last December.
Resistance and Support:
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