Fed Talk Helps USD, Swiss Trade Surplus
Swissquote Bank Ltd | Sep 22, 2015 07:24AM ET
The US dollar is having a great start of week as Fed members bolster confidence that the US central bank is going to raise rates in 2015. Since Monday, the greenback is gaining ground against most of G10 currencies, indicating that investors clearly believe that the most attractive opportunities are still in the US. The single currency lost 1.02% against the dollar while the NZD fell -1.16%, the SEK -1.15%, the AUD -0.54% and the Swissie -0.35%.
One after another, Federal Reserve’s members continue to breathe life into the idea of a rate hike in September. We now wonder whether the Fed is really believing that the Committee will be able to deliver a rate hike before 2016, given that the market is pricing in a 20% probability of such a move in October and 44% in December and that inflation is still well below the 2% target, or whether they are trying to spread its buoyant optimism to market participants. After San Francisco’s Williams, St. Louis’ Bullard and Richmond’s Lacker, Atlanta’s Lockhart also did its part of the job as he declared that he was “confident the much-used phrase ‘later this year’ is still operative”, adding that “As things settle down, I will be ready for the first policy move on the path to a normal interest-rate environment.” It seems that another round of “transitory factors” are thwarting the Fed’s plans. Meantime, the dollar index rose more than 2% and is currently testing the resistance lying at 96.
Eurozone Confidence is set to decline
September’s Consumer Confidence data will be released today. The data is expected to decline slightly to -7 from -6.9. However, sentiment will still hold around its highest level since 4 years. We think that the decrease will reflect the fact that the European economy is not providing sustainable signs that growth will accelerate.
In addition, there are growing concerns about the efficiency of using quantitative easing to boost the economy. The Japan and the U.S. examples are still struggling to stabilize their economies despite the massive stimulus programs of the past years. There is in fact no substantial evidence that proves the validity of such a monetary tool. However, it seems that it was the last solution for the European Central Bank to get back on path to growth. Furthermore Mario Draghi announced earlier this month that the ECB’s quantitative easing program is set to be expanded. The only thing QE does is that it brings the illusion of a strong economy through overvalued equity markets.
Consumer Confidence will also be affected by the Chinese slowdown, which is threatening the Eurozone global outlook. European exports toward China are likely to continue their decline and this will drive revenues lower. We remain bearish on the EUR/USD. Indeed new expectations for a Fed rate hike before year-end will grow and negative first results of the European QE through data (GDP in particular) will be released.
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Swiss trade surplus narrows
The eroding effect of a strong CHF continues to negatively affect the Swiss economic data. Swiss trade surplus declined more than anticipated in August falling to chf2.87bn from chf3.58bn in July. The market had expected at deceleration to CHF 2.75bn. Both sides of the trade balance read contracted. Real exports decreased by -2.4% from revised lower -2.3% while real imports dropped by -4.0% from a revised higher -1.8%. Swiss watch exports on a year-on-year basis dropped -1.6% with a big fall recorded in China down -38.5% (watch exports to Hong Kong fell -18.2% with sales still at a respectable chf225m). The Swiss government’s recent upgrade to its 2015 economic growth forecast to 0.9% from 0.8% feels a bit optimistic considering the steady decline in exports. Especially since the upgrade was based on further economic recovery in Europe which remains sensitive to CHF strength. This morning the CHF has been mixed, but in our view unrelated to the domestic economic data. CHF has become a funding currency for other trades and therefore subject more to external fluctuations. Today’s shifting risk sentiment is making for volatile CHF trading. USD/CHF traders should be targeting bullish trend extension to 0.9822 resistance. EUR/CHF excessive pullback to 1.0865 provides an opportunity to reload long positons. Participants should keep their eyes on this Wednesdays SNB Quarterly Bulletin for addition indication of SNB’s views.
Silver - Remaining Below the 200dma
The Risk Today
EUR/USD is moving lower. The pair is holding abelow 1.1200. Strong resistance lies at 1.1714 (24/08/2015 high). Strong support can be found at 1.1017 (18/08/2015 low). In the longer term, the symmetrical triangle from 2010-2014 favored further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). We have broken the resistance at 1.1534 (03/02/2015 reaction high). We are entering an upside momentum.
GBP/USD is pushing lower. Hourly resistance can be found at 1.5659 (27/08/2015 high) and hourly support is given at 1.5330 (15/09/2015 low). Stronger support is given at 1.5165 (04/09/2015 low). In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).
USD/JPY is moving in either direction around the 200-day moving average. Hourly support is given at 118.61 (04/09/2015 low). Stronger support can be found at 116.18 (24/08/2015 low). Hourly resistance can be found at 121.75 (28/08/2015 high). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF is still bouncing back after breaking hourly broken support at 0.9668 (14/09/2015 low). Hourly resistance lies at 0.9824 (09/09/2015 high). On the very short-term term, the technical structure is setting lower highs. However we remain bullish in the medium-term. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).
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