The foreign exchange markets open the week quietly. Markets are settling from last week's ECB triggered volatility. Dollar pares back some of last week's but is still trading down against other major currencies except yen and Canadian dollar. Swiss Franc and Euro remain the strongest currencies this month so far. Main focus of the month will remain of FOMC meeting next week and markets are pricing in 79% chance of a hike. But attention will turn to meetings of three other central banks this week first. Those include RBNZ, SNB and BoE, all on Thursday. Other focuses will include China trade balance, CPI and PPI; UK industrial and manufacturing productions, as well as Australian employment.
Kiwi and Aussie are surprisingly strong this month so far and managed to maintain their gains against the greenback in spite of the solid NFP report from US. RBNZ is narrowly expected to cut the OCR by another 25bps to 2.50%. But the central could instead decide to extend its pause to gather more information for a decision next year. That's possibly a reason for Kiwi's resilience.
NZD/USD formed a medium term bottom at 0.6102 and recovered. Subsequent price actions displayed corrective structure so far and we'll treating it as a consolidation pattern. There is scop for more upside in the pair, in particular if RBNZ decide to stand pat. But NZD/USD should start to lose momentum as it approaches 55 weeks EMA (now at 0.7050). And we'll also expect strong resistance from 38.2% retracement of 0.8835 to 0.6102 at 0.7146 to limit upside and bring down trend resumption. Hence, another rise could be treated as a medium term short opportunity.
SNB is expected to keep monetary policies unchanged this week. There were some speculations that SNB would push the interest rates further negative, or intervene, countering ECB's easing. But last week's disappointment on ECB eased some pressure on SNB. Thus, SNB would most likely take the wait-and-see approach for the moment. Meanwhile, BoE is also widely expected to keep policies unchanged too, interest rate at 0.50% and asset purchase size at GBP 375b.
GBP/CHF's sharp fall last week confirmed the rejection from 1.5545 resistance. Focus is now on whether 1.5570 is a short term top or a medium term top. We're slightly preferring the case that the rise from 1.1856 low completed a five wave triangle pattern and thus 1.5570 is a medium term top. Deeper fall would likely be seen to trend line support (now at 1.4792) first. Sustained break will confirm our bearish view and send the cross through 1.4543 support.
Here are some highlights for the week ahead:
- Monday: Swiss foreign currency reserves; Eurozone Sentix investor confidence
- Tuesday: Japan GDP final; Australia NAB business confidence; China trade balance; UK productions; Canada housing starts;
- Wednesday: China CPI and PPI; Australia home loan; Swiss unemployment rate
- Thursday: RBNZ rate decision; Japan BSI manufacturing, PPI; Australia employment; SNB rate decision; BoE rate decision; US jobless claims
- Friday: US retail sales, PPI, U of Michigan sentiment