Volatility Returns
Swissquote Bank Ltd | Sep 12, 2016 05:43AM ET
Forex News and Events
Scheduled: Random volatility (by Peter Rosenstreich)
Today will reveal just how broken the current system really is. The divergence between markets and Fed policy-makers’ interpretation of the economic environment has never been wider. US data continues to dependably disappoint, highlighted by the recent weak ISM reads, reflecting a broad-based slowdown, and driving Fed policy path expectations to discount a September rate increase. Yet, Fed speakers continue to communicate a conflicting message to the market. Normally dovish Boston Fed President Rosengren trigged the current round of selling by stating “a reasonable case can be made of continuing” the rate hike cycle. Prior to the blackout period that begins tomorrow, the schedule is chock-full of Fed speakers, therefore traders should brace for rogue waves of volatility. Today Fed Brainard’s traditionally dovish stance, will be the event to watch (Lockhart & Kashari will also speak). Should Yellen’s intention be to increase the probability of a September rate hike, this will be her last opportunity through Brainard.
The interpretation gap between the Fed and the market is resulting in communications driving volatility. So instead of aiming for an “invisible hand” strategy, Fed policy regrettably has become the pure determinate of asset pricing. In addition, many analysts calling for a September rate hike are merely talking their book and the crutch of the argument is based on preserving credibility. So now the Fed has a four mandate (rather than “dual”) after the known, price stability and maximum employment, Yellen’s “stable financial system” and now maintaining street credibility. Fed policy has now regressed to a school yard mentality and setting policy under the influence of bullies. While the solution might not be a rules-based approach, a higher quality measurement is sorely needed. The VIX has exploded to 58.0% to 20.17 on nothing more than shifting Fed expectations in the last three days. This kind of unexpected volatility makes the normal investment decision-making process obsolete and destroys the key objective of monetary policy. Perhaps the Fed should take a cue from the SNB to limit communications to scheduled meetings and allow the economic data to provide guidance.
Central bank watch (by Yann Quelenn)
BoE and SNB to remain on hold this week: This Thursday, the Bank of England and the Swiss National Bank will likely keep their monetary policy stance on hold. For the BoE, the current situation could actually not be better. The Brexit is still not effective and the GBP remains very weak. Nonetheless, recent short squeezes have brought the pound higher but the British currency is still largely down compared to its levels before the referendum. We maintain our bullish view as Britain continues to dodge the Brexit bombshell.
Get The News You Want
In Switzerland, the franc has weakened slightly towards 1.10 against the euro. Recently, Q2 GDP was released above expectations while inflation remains negative. We still believe that the SNB has a strategy of reaction and is ready to adapt its monetary stance based on the decisions of bigger players. Swiss policymakers are definitely not willing to make the SNB a leader in monetary policy. For the time being, this strategy is working out with any massive damage. The results of the ECB’s massive QE program and the sustainability of the single currency is a major challenge for Switzerland. Further easing from the ECB would make the situation even more difficult for the Helvetic country.
AUD/USD - Significant Selling Pressures.
The Risk Today
Yann Quelenn
EUR/USD keeps on pushing higher after the recent increase from hourly support given at 1.1123 (31/08/2016 low). It seems that buying pressures are important around this level. Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). Strong support can be found at 1.1046 (05/08/2016 low). In the longer term, the technical structure favours a very long-term bearish bias as long 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.
GBP/USD is still consolidating lower after breaking resistance implied by the upper bound of the uptrend channel. Key resistance is given at 1.3534 (29/06/2016 high). Last significant low can be found at 1.2866 (15/08/2016 low). Support implied by former uptrend channel may trigger further upside pressures. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY is edging lower despite ongoing short-term bullish retracement. Strong resistance can be found at 104.32 (02/09/2016 high). Hourly support is given at 101.21 (07/09/2016 low). A key support lies at 99.02 (24/06/2016 low). We favour a further bearish bias. 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).
USD/CHF's medium term momentum is clearly mixed. There are periods of strong and low volatility and the pair seems without direction. Support at 0.9739 (02/09/2016 low) has been broken. Hourly resistance is given at 0.9885 (01/09/2016 high). Next resistance lies at 0.9956 (30/05/2016 high). Expected to further weaken. 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 nonetheless a long term bullish bias since the unpeg in January 2015.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.