ZEW Surprises To The Upside
Swissquote Bank Ltd | Aug 16, 2016 06:58AM ET
Forex News and Events
ZEW Eurozone Survey is bouncing back
The ZEW indicator consists of a survey of around 350 economists. Last month, the July release uncovered the underlying difficulties of the Euro area. Indeed, the indicator collapsed to a 4-year low to -14.7 and bounce back to 4.6 this month. It is clear that the Brexit vote added significant downside according to those economists. Since then the BoE has eased and the ECB is also willing to expand (one more time) its monetary policy because of Brexit.
From our vantage point, those difficulties were already existent and the Brexit has not revealed anything more. The BoE was already struggling to save its GDP and ECB president Mario Draghi announced multiple times that the European Institution will do whatever it takes to get back towards the path of growth. In other words, the global slowdown has not been worsened by the Brexit vote. We also believe that the global slowdown is due to central bank policy easing and massive increases in balance sheets.
We remain dubious that the ECB will manage to further weaken the single currency through its policy easing. Nonetheless, the Fed won’t raise rates this year in our view and this will help the EUR to depreciate slightly. We target EUR/USD below 1.10 in the short-term.
Listening to Lockhart
The highlight of this slow, US summer trading session should be Atlanta Fed President Lockhart’s speech. Recently, hawkish comments by Lockhart suggested that September was a “live” meeting, so we anticipate that he will reiterate this sentiment today. Expectation for a rate hike remains subdued at a 18% probability, so even a slightly hawkish skew will send the USD higher on repricing speculative flows.
Yet, despite pockets of rogue strength such as labor markets income, the US remains lacking. Unless there is a massive shift in economic data or underpriced hawkishness in July’s FOMC meeting minutes, we expect the Fed to remain sidelined in September with a shrewd focus on December’s meeting. Yesterday, the Empire State manufacturing index fell to -4.2% in August against expectations for a mild 2.0% recovery. There were some bright spots in the underlying survey components, such as new orders - up 1.0% from -1.8% and shipments up 9.0% from 0.7%. Yet overall, aggregate headlines and falling delivery times back in negative territory indicate weak demand growth. In addition, US CPI, housing starts, industrial output and capacity utilization will support the general malaise plaguing the US. The lack of expected rise in CPI should make this a non-event. Other FOMC members Bullard, Dudley and Williams will also be significant to watch for general guidance on policy direction expectations. In the short term watch, USD/JPY to rally to 100.80 on a hawkish Lockhart but to refocus on the psychological support at 100.00, then 99.05.
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EUR/CHF - Volatility Lowers.
The Risk Today
EUR/USD has broken hourly resistance at 1.1234 (02/08/2016 low). A break of this resistance confirms deeper buying pressures. Hourly support can be found at 1.1046 (05/08/2016 low). Expected to consolidate. 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 has exited downtrend channel. The pair is trading below 1.3000 and the bearish momentum is lively. Hourly resistance can be located at 1.3097 (08/08/2016 high). Expected to head towards support given at 1.2798 (06/07/2016 low). 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 has exited en its range implied by the break of hourly support given at 100.68 (02/08/2016 low). Hourly resistance is given at 102.83 (02/08/2016 high). Expected to go further lower. 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 is trading lower. The pair continues to trade between hourly support at 0.9634 (02/08/2016 low) and strong resistance given at 9956 (30/05/2016 high). Buying pressures seem weak and indicate that a break of support at 0.9634 is likely. 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.
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