Central Banks In The Driver Seat: Fed, BOE And SNB
| Jun 18, 2014 07:58AM ET
The FX markets are mostly focused on the FOMC decision scheduled at 18:00 GMT. The USD hawks are louder after the US inflation surprised on the upside yesterday. The Fed is expected to keep the policy unchanged and reduce the monthly bond purchases by another 10 bn dollar; the accompanying statement will be closely monitored. In UK, the uncertainty on BoE minutes triggered a pound sell-off in London, key technical levels are not damaged. The Swiss SECO released quarterly forecasts before the SNB meeting due on June 19th, including the Fed tapering among its global risks.
h3 BoE surprised by low 2014 rate hike expectations/h3The BoE minutes showed unanimous decision to keep the bank rate at the historical low of 0.50% at June 4-5th MPC meeting, while repeating that the MPC view remains “more balanced” as the slack in UK economy may “be absorbed more quickly than had previously been expected”. The minutes voiced uncertainty on market reaction to higher rates after the long period of 0.5% while adding “it could be argued that the more gradual the intended rise, the earlier it might be necessary to start tightening policy”. The Cable sold-off to 1.6935 before rebounding on BoE being surprised by the low probabilities some markets attached to 2014 rate hike. The minutes did not damage the key technical thresholds. The GBP-bias remains positive given the hawkish shift in BoE outlook. Technicals on EUR/GBP signal need for deeper upside correction while option barriers remain solid at 0.80300/0.80750 for today expiry. On the USD leg, we shift our focus to FOMC decision due at 18:00 GMT.
h3 Fed hawks looking for a rate-hike hint/h3The FOMC will announce decision at 18:00 GMT. The Fed rate is expected to remain unchanged at 0.25%, the monthly bond purchases should be reduced by additional 10bn dollars. The Fed hawks sound louder after the strong inflation figures released yesterday. Traders will be concentrating on couple of important issues, including Fed’s inflation outlook and the view vis-à-vis the slack in the labor market. The goal is to extract a hint on the first rate hike once the tapering ends. In this respect, the individual rate forecasts from Fed officials will be important, although the Fed Chair Yellen played down the enthusiasm regarding this exercise.
h3 Don’t expect action from the SNB/h3In its quarterly report, the Swiss State Secretariat for Economic Affairs, SECO, revised down its growth forecast from 2.2% to 2.0% in 2014, from 2.7% to 2.6% in 2015. The forecasts on the consumer prices remained unchanged from March readings: 0.1% in 2014 and 0.4% in 2015. The Fed QE exit and the “fragile” Euro-zone financial system have been pointed out as global risks.
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The Swiss franc consolidates weakness versus USD, while the subdued EUR appetite keeps the EUR/CHF cross in the tight range of 1.21600-1.22000. The SNB gives policy verdict on June 19th and is expected to keep the 3-month libor target unchanged at 0.00-0.25% and the EUR/CHF floor at 1.2000. Given that the negative correlation between EUR/USD and EUR/CHF holds (40-day correlation at -15% appr.), the dovish ECB measures do not weigh on the EUR/CHF floor, thus giving no reason to SNB to react at June meeting. Moreover the latest inflation readings suggest the end of deflationary pressures; the Swiss consumer prices advanced 0.2% y/y in May. Given the macro fundamentals, an SNB action would be simply too drastic for the Swiss economy. First because the SNB’s foreign exchange reserves stand at the record highs of roughly 445bn francs and additional FX exposure (by moving the floor higher) means additional costs. Second, the Swiss excess reserves represent more than twice the country’s gross domestic product and negative rates would have disproportionate impacts on the economy.
2014-06-18T12:30:00 CAD Apr Wholesale Trade Sales MoM, exp 0.50%, last -0.40%
2014-06-18T12:30:00 USD 1Q Current Account Balance, exp -$97.0B, last -$81.1B
2014-06-18T18:00:00 USD Jun Fed QE3 Pace, exp $35B, last $45B
2014-06-18T18:00:00 USD Jun Fed Pace of Treasury Pur, exp $20B, last $25B
2014-06-18T18:00:00 USD Jun Fed Pace of MBS Purchases, exp $15B, last $20B
2014-06-18T18:00:00 USD FOMC Rate Decision, exp 0.25%, last 0.25%
EUR/USD's bullish intraday reversal on 5 June has created a key support at 1.3503. In the short-term, prices are moving sideways near this level. However, a short-term bearish bias is favoured as long as prices remain below the hourly resistance at 1.3602 (10/06/2014 high). Another resistance stands at 1.3677 (06/06/2014 high). Today's FOMC meeting is likely to determine the direction of the next short-term trend. In the longer term, the break of the long-term rising wedge (see also the support at 1.3673) indicates a clear deterioration of the technical structure. The long-term downside risk implied by the double-top formation is 1.3379. Key supports can be found at 1.3477 (03/02/2014 low) and 1.3296 (07/11/2013 low).
GBP/USD has thus far failed to break the major resistance at 1.7043 (05/08/2009 high). However, the short-term bullish momentum is intact as long as the initial support area between 1.6943/1.6938 (17/06/2014 low) holds. Another support can be found at 1.6882 (27/05/2014 high). In the longer term, a bullish bias is favoured as long as the support at 1.6661 (15/04/2014 low) holds. The persistent buying interest favours an eventual break of the major resistance at 1.7043 (05/08/2009 high). Other resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low).
USD/JPY is bouncing near the support implied by the 200 day moving average (around 101.61). The break of the hourly resistance at 102.14 (12/06/2014 low) alleviates short-term bearish concerns. Other hourly resistances lie at 102.42 (intraday high, see also the declining trendline) and 102.80 (04/06/2014 high). An initial support now stands at 102.10 (intraday low). A long-term bullish bias is favoured as long as the key support 99.57 (19/11/2013 low) holds. Monitor the support area provided by the 200 day moving average and 100.76 (04/02/2014 low). A major resistance stands at 110.66 (15/08/2008 high).
USD/CHF has thus far failed to break the strong resistance area between 0.9012 and 0.9037. However, the current mild correction in prices suggests a persistent buying interest. An initial support lies at 0.8960. Other supports stand at 0.8908 (05/06/2014 low, see also the 38.2% retracement) and 0.8883. Today's FOMC meeting is likely to tell us if prices can move higher in the short-term. From a longer term perspective, the bullish breakout of the key resistance at 0.8953 suggests the end of the large corrective phase that started in July 2012. The long-term upside potential implied by the double-bottom formation is 0.9207. A key resistance stands at 0.9156 (21/01/2014 high).
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