Swiss data: mixed signal
Swiss retail sales improved slightly in September, rising 0.2% on a year-over-year basis. However, the overall sentiment is pretty mixed as the previous reading was downwardly revised to -0.6%y/y from -0.3% first estimate. Over the summer, the marginal appreciation of the Swiss franc against the single currency provided a breath of fresh air to the economy, which help to release the pressure on the SNB and to improve, to some extent, the consumer sentiment. The Swiss economy is reversing trend with the manufacturing sectors finally recovering after the SNB unpegged the Swiss franc on January 15th. The purchasing managers’ index jumped to 50.7 from 49.5 in September, beating market expectation of 50.1, mostly due to a surprise surge in output (53.7 versus 49.1 in September).
However, in spite of those encouraging news, the Swiss economy remains fragile and greatly exposed to external factors. Recent declarations by Mario Draghi signalling that the ECB is ready provide further stimulus has heightened fears of a weaker EUR/CHF, casting a cloud over the Swiss economic outlook and raising uncertainties, again. This morning, EUR/CHF is treading water between 1.0860 and 1.09.
US data key in determining lift-off timing
In the US ISM manufacturing is expected at 50.0 against 50.2 read in September. US construction spending is expected at 0.5% against a rise of 0.7% in September. Recent Fed hawkish statements have put the spotlight back on December’s meeting, indicating that data reads between now and then will increase in relevance (trades will be watching ISM manufacturing and payrolls this week). Uncertainly over the timing of the Fed interest rate launch and comments from ECB President Mario Draghi saying that the expansion of the current QE program is still an “open question” suggests that EUR/USD will be trapped in this current 1.0900 to 1.1096 consolidation pattern.
Chinese data on the soft side
In slightly encouraging news China’s Caixin manufacturing PMI increased to 48.3 in October, above consensus of 47.6 and a September reading of 47.2. Yet with the manufacturing sector still below 50 indicating contraction, markets viewed the read as a risk-off signal and sold Asia regional equity indices. Elsewhere, the official NBS PMI in October remained unmoved at 49.8 against expectations for improvement to 50.0. New orders increased marginally by 0.1 to 50.3, the move was driven by domestic orders rather than external demand. While the markets viewed today releases as evidence that China remains sluggish, we see the absence of downward reads as a positive. Clearly China faces significant headwinds but today’s data combined with fringe developments (including the governments and PBoC proactive stimulus strategy) suggest stabilization. Considering the dire predictions circulating around China even the lack of substantial improvement but mild progress in China’s production activity is seen as a positive development. We anticipate the central government to provide additional support and strong push for implementation of launched measures in the coming months. This, combined with PBoC actions (two to three more interest rates cuts in 2016) should give China’s growth the lift it needs.
The Risk Today
EUR/USD is digesting its recent short-term overextended rise and shifted into consolidation pattern. Haven broken the minor resistance at 1.0989, alleviated short-term concerns stemming from last weeks bearish intra-day correction. Hourly resistance is given at 1.1387 (20/10/2015 low). Stronger resistance can be found at 1.1561 (26/08/2015 low). Since March 2015, the pair is improving. Key supports can be found at 1.0458 (16/03/2015 low) and 1.0000 (psychological support). The technical structure favours an eventual break higher. Strong resistance is given at 1.1871(12/01/2015).
GBP/USD bullish rally has paused but watch Initial resistance can be found at 1.5529 (18/09/2015 high). The short-term technical structure suggests continued bullish momentum. An initial support lies at 1.5202 (06/06/2014 high). In the longer term, the technical structure looks like a recovery as long as support given at 1.5089 stands. A full retracement of the 2013-2014 rise is expected.
USD/JPY continues to move within its range and is now preparing to challenging its recent lows at 120.80 (28/10/2015 low), yet range trading should continue Strong resistance is given at 121.75 (28/08/2015 high). Expected to show continued increase before targeting again resistance at 121.75. 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 116.18 (24/08/2015 low).
USD/CHF made a sharp bearish reversal at 0.9957 (29/10/2015 high), which is likely to cap prices in the short-term. After a brief consolidation period the pair should be ready to challenge psychological resistance at 1.0000. Hourly support is given at 0.9476 (15/10/2015 low). Expected to show continued strengthening. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).
