Forex News and Events
The Bank of Canada (BoC) will release its rate decision today. We expect the Bank to leave its target rate unchanged at 0.75%, in line with median forecast. The recent downturn in the Canadian economy is likely to gradually fade away as recent data surprised on the upside. April unemployment rate came in flat but better than expected at 6.8% versus 6.9%, while manufacturing sales increased in March by 2.9%m/m versus 1% expected, rebounding from -2.2% the previous month. Moreover, March’s retail sales printed at 0.7%m/m, while market analysts were looking for a weaker read of 0.3%. However, inflation remained of major concern as the consumer price index rose only 0.8% in April compared with a year earlier, as the country is still suffering from lower oil prices (WTI prices dropped more than 40% from a year earlier). However, as written in its latest report, the BoC expects inflation “to ease slightly below 1% in the coming month” before meeting the 2% target in 2016.
A strong dollar, higher oil prices and a strengthening US economy will do the job. The BoC does not need to take a more proactive stance at the moment. In May, the CAD already retreated 3.89% against the GBP and 2.10% against the dollar. USD/CAD surged above the 1.2378 resistance (Fib 50% on March-May debasement) and is about to validate the breakout. We expect the dollar to strengthen further against the CAD.
BRL under pressure
USD/BRL broke the strong resistance standing around 3.09 (multi highs and lows) and is turning the level into a support. The real closed at 3.1535 yesterday against the dollar as markets await the voting results from the senate for two bills dealing with fiscal consolidation. The Brazilian currency will therefore remain under pressure as the approval process goes on. The upside is widely open with a strong resistance around 3.30 (previous highs).
BoJ’s minutes target inflation (by Yann Quelenn)
The Bank of Japan’s minutes of its April policy board meeting have been released early this morning. Major statement was that the Quantitative Easing will continue until the 2% inflation is stable. Indeed, the price stability is primary concern for the central Bank and their credibility. For this reason, the BoJ has decided to take a breath and to delay the 2% inflation target until the first year of 2016. However, some members think the new target is also too optimistic. It also has been added that “private consumption lacks momentum.” Nonetheless, incomes are improving and should push consumption higher and therefore create inflation.
We anticipate inflation to rise as the low oil price effect is diminishing, and the current debase of the yen will give positive traction to the inflation. Following this information, the USD/JPY has reached 122.78 and is still trading around this level, the highest since 2007.
EUR/USD - Bouncing on the short term trend-line
The Risk Today
Yann Quelenn
EUR/USD EUR/USD has bounced on the short-term rising trend-line. Support lies at 1.0820 (27/04/2015 low) and hourly resistance can be found at 1.1217 (19/05/2015 high). In the longer term, the symmetrical triangle from 2010-2014 favors 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). Break to the upside would suggest a test of resistance at 1.1534 (03/02/2015 reaction high).
GBP/USD GBP/USD is now consolidating after its sharp decline. The pair has tested the support at 1.5355 (26/05/2015 low). Key resistance lies at 1.5700 (21/05/2015 high). 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). The current upwards consolidation suggests a medium-term persistent buying interest as long as support as 1.5380 holds.
USD/JPY USD/JPY has broken the key resistance at 122.03 (10/03/2015 high) and is now at level unseen for 8 years. The pair is still bullish as we stay above the 200-dma. Hourly support is given at 121.45 (25/05/2015 low). 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 124.14 (22/06/2007 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF USD/CHF has erased the mid-term declining channel at 0.9498 and stays around this level. Supports lies at 0.9406 (25/05/2015 low). Resistance can be given at 0.9573 (29/05/2015 high). In the long-term, there is no sign to suggest the end of the current downtrend. After failure to break above 0.9448 and reinstate bullish trend. As a result, the current weakness is seen as a counter-trend move. Key support can be found at 0.8986 (30/01/2015 low).
