Forex News and EventsEmerging Markets Stabilize
After suffering a massive sell-off, which was triggered by a hawkish shift in the Fed rate-path projections, emerging-market currencies recovered somewhat on Friday as the US dollar weakened on a broad basis. Eastern European currencies made the most of the greenback’s weakness with the Russian ruble and Polish zloty rising 0.28% and 0.30% respectively. The Turkish lira also enjoyed some relief after tumbling as much as 2% amid the terror bombing attack in Istanbul last weekend. South American currencies had a mixed session on Thursday with the Colombian and Chilean pesos tumbling 1.30% and 1.55% respectively. The Mexican peso traded flat this morning while the Brazilian real closed in positive territory, up 0.20%, with USD/BRL easing to 3.3651.
The Brazilian real, just like most EM currencies, has been insensitive to local developments with investors focused exclusively on the US dollar and the recent FOMC meeting. Even the Brazilian senate’s approval of a constitutional amendment aiming at limiting growth in public spending went unnoticed. The upper house voted 65 to 14 for PEC 55 (previously PEC 241) in spite of massive street protests as it is widely seen as another hard blow for the poor. The un-elected president who entered into office due to Dilma Rousseff’s impeachment last August is facing growing discontent as he continues to push reforms that would never been accepted under Rousseff’s government. In spite of these new austerity measures that would help the country climb out of recession, the uncertainty stemming from elevated political risk is keeping international investors on the back foot, which is weighing on the real and Brazilian assets in general.
Even though we believe that the USD overshoot remains the main threat as we enter 2017, the current political uncertainty may prevent a rapid recovery in the real. Moreover, the unpredictability of the upcoming US government is prompting investors to stay invested in USD.
Russia Set To Surprise Markets
This morning the Central Bank of Russia will release its key rate and markets expect it to remain unchanged at 10%. In our view, we expect the CBR to cut rates by 50 basis points to 9.5% due to several recent signs of improvement in Russia. The first of these is inflation, which has dropped to 5.7% from 6.1% since the end of September. The CBR still expects to reach 4% by the end of 2017, which means that Russian policymakers are likely to start a new easing cycle.
Russia is still suffering with an economic growth of -0.8% yield-to-date. Nonetheless, since oil prices recently largely appreciated, the economy may have expanded on an annualized basis which would also support a normalization path of the interest rates.
On top of that, currency conditions are ideal at the moment. Indeed, the ruble has strengthened strongly against the US dollar and is now trading at less than 62 ruble for a single dollar note - making it easier for the CBR to react. We therefore believe that today’s decision should weaken the ruble.
Silver - Monitoring Key Support At 15.82.
The Risk Today
EUR/USD is stalling below 1.0500 amid the Fed meeting. Yet, hourly resistance is far away given at 1.0670 (14/12/2016 high). Hourly support can be found at 1.0367 (15/12/2016 low) has been broken. Expected to further consolidate. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low) is on target. Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.
GBP/USD has exited uptrend channel. Hourly support is given at 1.2302 (18/11/2016 low). The technical structure suggests further weakness towards support at 1.2302. 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's bullish pressures are still very strong. The pair has finally broken strong resistance area at 116.00. Hourly support can be found at 114.74(12/12/2016 low). Stronger support lies at 112.88 (05/12/2016 low). The technical structure suggests further strengthening towards 120.00. We favor 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 has surged amid the Fed meeting. Key support is given at the parity. Hourly resistance at 1.0205 (30/11/2016 high) has been broken. Expected to consolidate. 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.
