Market Brief
EUR/USD broke a few supports last week, making it clear that the bullish momentum came to an end. The pair escaped its ascending channel to the downside and crossed its 200dma downwards, indicating an end to the medium-term uptrend. In spite of recent easing selling pressures, the risk remains on the downside for most EUR-crosses as the market wonders in which ways the ECB’s QE will be altered. On the downside, the closest supports stand at 1.0848 and then 1.0809 (low from August 5th and July 20th, respectively) but for now the $1.10 threshold seems to hold ground.
After a period of relative calm for the Swiss franc, EUR/CHF has reached 1.0758 on Friday, bringing the SNB out in a cold sweat. The big question now is what the SNB can do to prevent the CHF to appreciate further against the single currency. The SNB’s balance sheet has continued to expand steadily over the last few months as Thomas Jordan tried to protect, to the extent possible, the Swiss economy. We do not believe that the central bank will increase substantially its balance sheet; the intervention will therefore be of a moderate size. We also think that a modification of the exemption threshold, set at 20 times the reserve requirement ratio, is highly unlikely as it would transfer the burden on the small savers. In our opinion, a decrease of the key interest rates is the only reasonable option. In the meantime, we expect the Swiss franc to remain under buying pressure as the market is well aware that the SNB has been cornered by the ECB, pushing the Swiss central bank back in the spotlight. We are bearish EUR/CHF and we won’t be surprise if the pair is back below 1.06.
In Canada, consumer price index fell more-than-expected by 0.2%m/m in September (versus -0.1%m/m expected), compared to flat reading in August. USD/CAD jumped to 1.3201 in the Asian session as the BoC decided to keep rates unchanged in spite of persistently weak economic data. USD/CAD stabilises around the 1.3145 level (Fib 50% on September-October debasement) as the market await the new batch of economic data from the US as well as the next FOMC rate decision (on Wednesday). We anticipate the Fed will unsurprisingly leave its key rates unchanged. However, the market will focus on the accompanying statement to get some fresh news about the Fed thinking.
On the equity front, Asian regional markets continue to rise this morning. The Japanese Nikkei 225 was up 0.65% while the TOPIX index rose 0.72%. In mainland China, stocks edged higher on strong gains from tech companies, the Shanghai and the Shenzhen Composite climbed 0.50% and 0.68% respectively. On the other hand in Hong Kong, investors let the Hang Seng move into negative territory, down -0.29%.
Today traders will be watching German IFO; new home sales and Dallas Fed manufacturing activity index from the US; weekly trade balance from Brazil; trade balance from New Zealand.
Currency Tech
EURUSD
R 2: 1.1495
R 1: 1.1387
CURRENT: 1.1049
S 1: 1.0809
S 2: 1.0458
GBPUSD
R 2: 1.5819
R 1: 1.5659
CURRENT: 1.5337
S 1: 1.5202
S 2: 1.5089
USDJPY
R 2: 125.86
R 1: 121.75
CURRENT: 120.86
S 1: 118.07
S 2: 116.18
USDCHF
R 2: 0.9903
R 1: 0.9844
CURRENT: 0.9770
S 1: 0.9476
S 2: 0.9384