Forex News and Events
Inflation pressure remains strong in Brazil despite the BCB’s efforts to reduce inflation toward the 4.5% target. Inflation increased alarmingly in May and accelerated to 8.47%y/y, as food and beverage, housing, healthcare and personal expenses pushed the measure above median forecast of 8.30%. The negative headline increased the odds of further monetary policy tightening by the BCB, with another increase of the Selic rate by 50 bps by the end of July (next Copom meeting on July 29). In addition, the hawkish tone of the Copom minutes released yesterday suggests that Brazil is not done with rate hikes yet. The 2.5% BRL’s appreciation against the USD on Thursday highlighted the fact that market anticipations are skewed towards further rate tightening. We anticipate that decreasing volatility and the absence of negative headlines about the ongoing fiscal consolidation process will renew traders’ interest in the carry embedded in the Brazilian currency, strengthening the BRL against the dollar in the short-term. USD/BRL is currently trading below the key 3.10 level and will try to convert this level into a resistance before heading toward the next support standing at 3.0638.
RBNZ’s dovish bias
Earlier this week, the Reserve Bank of New Zealand cut its official cash rate by 25bps to 3.25%. This cut is the first one in 4 years. RBNZ’s Governor Wheeler added that the decision was justified to adjust the exchange rate to the downside. The RBNZ remains in easing mode and is ready to debase further the NZD to ensure that inflation converge toward the 2% target rate before 2017. The Governor made clear that further rate cuts will be data dependent and therefore closely related to the prospect for dairy prices (dairy products account for a third of the country’s export). After more than 2 years of improvement, the job market is now feeling the heat as unemployment rate rose to 5.8% in Q1 2015, the first increase since Q4 2013. However the booming housing market, especially in Auckland, will probably prevent the RBNZ to lower rate massively before the proposed changes to the LVR policy, with potential entry force in October this year, begin to take effect.
US: Strong Retail Sales (by Yann Quelenn)
US retail sales came in better than expected at 1.2% in May m/m, erasing the loss from December to February. It is the third increase in a row. Purchase of new cars pushed up the indicator. In addition, retail sales have printed a 2.7% rise year-on-year. The dollar gained from this data, but it seems that the market is reluctant to reload long dollar position as there are still uncertainties on the recovery. However, expectations concerning a Fed rate hike in September has been boosted.
Next week, the FOMC will meet. Even if a rate hike is very unlikely to happen, minutes will be well regarded to assess how hawkish the Fed is for the September session. However, there is one major issue by raising rates, it will also increase the annual deficit by a huge amount. Indeed, US has around $18 trillion debt and an increase of just 1% would rise the federal deficit by more than $100 billion. US economy must be strong to make this deficit sustainable over the long haul.
GBP/JPY – Touching Its Year High
Today's Key IssuesCountry / GMT Apr Industrial Production YoY, exp 1.50%, last 2.10% INR / 12:00 May CPI YoY, exp 5.00%, last 4.87% INR / 12:00 May PPI Final Demand MoM, exp 0.40%, last -0.40% USD / 12:30 May Teranet/National Bank HPI MoM, last 0.20% CAD / 12:30 May Teranet/National Bank HPI YoY, last 4.40% CAD / 12:30 May PPI Ex Food and Energy MoM, exp 0.10%, last -0.20% USD / 12:30 May Teranet/National Bank HP Index, last 168.42 CAD / 12:30 May PPI Ex Food, Energy, Trade MoM, exp 0.10%, last 0.10% USD / 12:30 May PPI Final Demand YoY, exp -1.10%, last -1.30% USD / 12:30 May PPI Ex Food and Energy YoY, exp 0.70%, last 0.80% USD / 12:30 May PPI Ex Food, Energy, Trade YoY, exp 0.90%, last 0.70% USD / 12:30 Bloomberg June Canada Economic Survey CAD / 13:00 Jun P U. of Mich. Sentiment, exp 91.2, last 90.7 USD / 14:00 Jun P U. of Mich. Current Conditions, last 100.8 USD / 14:00 Jun P U. of Mich. Expectations, last 84.2 USD / 14:00 Jun P U. of Mich. 1 Yr Inflation, last 2.80% USD / 14:00 Jun P U. of Mich. 5-10 Yr Inflation, last 2.80% USD / 14:00 May Exports YoY, last -14.00% INR / 22:00 May Imports YoY, last -7.50% INR / 22:00 ABPO May Cardboard Sales BRL / 22:00 May Trade Balance, exp -$11000.0M, last -$10992.3M INR / 22:00
The Risk Today
Yann Quelenn
EUR/USD has drifter lower. Hourly resistance is given at 1.1346 (10/06/2015 high). Hourly support can be found at 1.1182 (11/06/2015 low). A break of key support at 1.0868 (28/05/2015 low) will provide downside momentum to the pair. 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 is now trading around the hourly resistance at 1.5554 (10/06/2015 high). Hourly support is given at 1.5369 (10/06/2015 low). Key resistance lies at 1.5815 (14/05/2015 high). The short-term technical structure suggests an upside momentum. 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).
USD/JPY is still trading slightly below its 13- year highest level at around 124.00. We remain bullish for the pair as we stay largely above the 200-dma. However, the pair is gaining bearish momentum on the short term. Hourly support is given at 122.46 (10/06/2015 low). Key resistance lies at 135.15 (14-year high). 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 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF is decreasing. Hourly support is given at 0.9234 (10/06/2015 low). Hourly resistance can be found at 0.9503 (05/06/2015 high). Stronger resistance can be found at 0.9573 (29/05/2015 high) and stronger support lies at 0.9072 (07/05/2015 low). In the short-term, the pair is setting lower highs, therefore we remain bearish over the next few weeks. 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 0.8986 (30/01/2015 low).
Resistance and Support:
- EUR/USD1.25661.16791.14591.11761.08681.08201.0660
- GBP/USD1.61891.60821.58791.55121.50911.48901.4566
- USD/CHF0.98630.97120.95730.93600.92470.89860.8800
- USD/JPY147.66135.15125.64123.71122.03118.18115.57