USD/RUB Subject To Downside Risk, EUR/USD To Recover
Swissquote Bank Ltd | May 23, 2016 07:50AM ET
Forex News and Events
Russia – Higher retail sales would raise again inflation concerns
The Russian economy is still suffering. Retail sales, which surged to 5.1% m/m in March are expected to decline by -1.6% m/m. Consumer spending is very volatile and it may be difficult for the Russian Central Bank to assess the current economic outlook as policymakers will need to make decisions concerning their interest rates at the next monetary policy meeting to be held next month.
The central bank is concerned about upside risks on inflation and in particular about wages. The last print, in March, indicated a 9% y/y nominal wage increase. When adjusted for inflation, wages are growing 1.6% y/y which appears more accurate. Wages have spiked since the start of this year - reflecting the rebound in oil prices. We believe that domestic demand should improve and that retail sales should print higher than expectations today.
Monetary policy will be considered as successful once inflation has been lowered. We do not believe that it is going to be the case in the short or even medium-term. The central bank may then be forced to further tighten rates. We remain bearish on the USD/RUB as the major driver will be the end of rate hike hopes from the Fed for this year.
USD to come under pressure
This morning, the single currency erased almost completely last week’s gains amid disappointing PMI figure from the Eurozone. The Services PMI printed at 53.1 in May versus 53.2 expected, while the Composite gauge came in at 52.9 and missed the 53.2 consensus, suggesting that the slight economic recovery in the first quarter may be proven temporary. EUR/USD dropped to 1.12, after reaching 1.1243 in Tokyo.
Over the last three weeks, the greenback has taking advantage of raising rate hike expectations and pushed the pair to 1.12, down 3.40%. On the medium term, we expect EUR/USD to climb back around 1.15 as the market would slowly realise the Federal Reserve won’t be able to hike rates at its June’s meeting. We target 1.1350.
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The Risk Today
EUR/USD is drifting slightly higher and the pair is trading around 1.1200. Hourly support can be found at 1.1144 (24/03/2016 low) and hourly resistance is located at 1.1349 (17/05/2016 high). Stronger resistance lies at 1.1616 (12/04/2016 high). Expected to show further weakness as the technical structure suggests further downside moves. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. Key resistance is located at 1.1640 (11/11/2005 low). The current technical appreciation implies a gradual increase.
GBP/USD is moving lower. Hourly support is given at 1.4404 (15/05/2016 low) while hourly resistance at 1.4663 (19/05/2016 high) has been broken. Stronger resistance is located at 1.4770 (03//2016 high). Expected to show continued strengthening. 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's bullish momentum seems to fade. The pair has exited the bullish breakout. The pair is back below 110. Strong resistance is given at 111.91 (24/04/2016 high). Hourly support lies at 108.72 (18/05/2016 low). Expected to show further weakening towards 108.72. 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's bullish momentum is still on. Hourly resistance can be found at 0..9926 (intraday high) while a break of strong support is given at 0.9652 (06/05/2016 low) would confirm significant selling pressures. Expected to show continued strengthening. 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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