U.S. Data In Focus, Mexico Economy Gains Momentum
Swissquote Bank Ltd | Apr 26, 2016 07:12AM ET
Forex News and Events
Last batch of US data ahead of tomorrow FOMC meeting
A fresh batch of economic data from the US are due for release today, it would be the last one before tomorrow FOMC meeting. As repeated many times, the Fed is broadly expected to leave the federal funds rates unchanged at between 0.25% - 0.50%. However, accompanying the statement will be key in assessing the likelihood of a rate hike in June.
The advance durable goods orders report is due later today and is expected to see an improving picture of the manufacturing sectors. New orders are expected to rise 1.9%m/m (seasonally adjusted) in April after shrinking 3% in March. Excluding the transportation sector, the gauge should increase by 0.5%m/m compared to a contraction of 1.3% in the previous month. Overall, since the beginning of the year, the indicator has painted a gloomy picture of the manufacturing sector against the backdrop and a strong dollar and sluggish global demand. In our opinion, a rebound of the manufacturing activity would definitely help the Fed be more comfortable with a rate hike in June.
The S&P/Case-Shiller home prices is expected to print above the flatline for a seventh straight month, up 0.8%m/m in February after a similar increase in the first month of the 2016. However, given the mixed signals sent by the housing market since the beginning of the year, we think the risk is on the downside.
All in all, we do not believe that those figures will have a strong effect on the USD today, either bad or good, as market participants are just waiting for tomorrow Fed’s statement. However, if the manufacturing sector and to a broader extend, export activities show no sign of stabilisation, the Fed may delay the next rate hike further into 2016. This morning, EUR/USD spiked to 1.13 in early European session as treasury rates across Europe tick up.
Mexico – Economic activity set to improve
Today Mexican Economic Activity will be released. The data rose 2.33% year-on-year in January and is expected to print at 3%. Since last year, primary, secondary and tertiary sectors of the economy have shown positive performance. Other recent data includes February retail sales and despite slower growth, annual performance is clearly strong with a 9.6% y/y improvement.
Surprisingly, lingering low oil prices did not have a massive impact on Mexico. Now that oil prices are bouncing further, downside pressures on the economy look even less significant. Mexico was thought to have paid the price of a lack of investment in its industry sector and archaic oil infrastructure and many believed that it was for this reason that Mexico was not enable to be competitive in the industry. Ultimately however, it would appear that Mexico has not suffered much from this. Mexico was already unable to compete at higher oil prices so with lower oil prices, there was really not much to lose further.
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We believe that the main drivers of the Mexican economy are closely related to the United States, its major partner. The ongoing disappointment felt by investors surrounding the Fed’s monetary policy is clearly helping Mexico. The Fed is willing to increase rates but US fundamentals are pretty mixed. Mexico needs to carefully follow Fed monetary policy to avoid both capital outflow, which may result from a narrowing rate differential, and the threat of price stability. USD/MXN should continue to go lower as long as the Fed maintains its dovish stance.
Silver - Long-Term Reversal?
The Risk Today
EUR/USD is currently heading lower but the pair still seems far from hourly support at 1.1144 (24/03/2016 low). Resistance can be found at 1.1465 (12/04/2016 high). Stronger support is located a 1.1058 (16/03/2016 low). Expected to show further increase within the downtrend channel. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1746 ( holds. Key resistance is located at 1.1640 (11/11/2005 low). The current technical appreciation implies a gradual increase.
GBP/USD has broken resistance at 1.4514 (18/03/2016 low). Hourly support is given at 1.4320 (04/04/2016 high). Expected to show further increase toward resistance at 1.4668 (04/02/2016 high). The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.
USD/JPY is now bouncing back. Hourly resistance can be found at 111.91 (25/04/2015 high) while hourly support can be found at 107.68 (07/04/2016 low). Short-term momentum is clearly bullish. Expected to show further increase. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).
USD/CHF is lying within a short-term uptrend channel but the pair fails to hold above former resistance at 0.9788 (25/03/2016 high). Hourly support can be found at 0.9499 (12/04/2016 low). Expected to show further increase as short-term buying pressures do not seem strong. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.
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