Forex News and Events:
The burden of sovereign debt concerns still weighs heavy on the market, despite encouraging data overnight from New Zealand and Australia. Had this been a few weeks ago, such hawkish sentiment would have had a contagion effect across to most other risk assets, but today, AUD and NZD are the sole beneficiaries of the RBNZ outlook and Australian jobs data. It seems clearer now than ever that the profitability of indiscriminate USD selling is waning, and that a shift towards interest-rate differential trades seems likely in the coming year. The morning’s SNB rate meeting has had a broadly neutral impact on the currency, as rates were kept on hold as expected but the central bank’s remarks on inflation did not create a compelling driver either way for USDCHF. The drastic measures that the SNB adopted at the outset of the financial crisis have been one of the major reasons that the Swiss economy has weathered the storm so well compared to other peers, spurring sustained demand for CHF from investors. However, against the persistent flow of CHF buying has been the resolute SNB intervening to weaken the currency in a bid to stave off deflation – the fact that the YoY CPI figures released earlier this month managed to climb out of negative territory had prompted some to question whether such a heavy-handed approach to the currency would still be warranted. Today’s meeting however has simply reaffirmed that the SNB are remaining cautious of the risks to the inflation outlook, and whilst they saw CPI being positive throughout the coming year, they repeated their commitment to preventing CHF appreciation against the EUR. Coming up this afternoon is the latest BoE rate decision; but it is likely to be the least eventful of the trilogy of central bank meetings. Given the recent addition of GB25bn to the QE programme, the MPC still have some time before they need to commit to ending the stimulus measure or considering another extension, and we feel that the wait-and-see approach will be favoured by all members this time around.
Today's Key Issues (time in GMT):
12:00 GBP BoE MPC Bank Rate decision, % Dec exp: 0.50 prev: 0.50
13:30 USD Trade balance, bn $ Oct exp: -36.8 prev: -36.5
13:30 USD Initial jobless claims, thous 5-Dec exp: 455 prev: 457
13:30 USD Continuing claims, thous 28-Nov exp: 5450 prev: 5465
The Risk Today:
EurUsd The EURUSD’s bearish movement lost momentum as it approached key support level at 1.4625 yesterday. The pair bottomed at 1.4676 and but managed to find enough bids to close higher at 1.4738, and has since consolidated in a tight range. We still anticipate strong support at 1.4625, and the just above there at 1.4635 where the 100 day moving average now comes in. A break below these levels would trigger further selling pressure towards 1.4480, and we would ideally need to see a break above 1.4900 to neutralize this bearish tone.
GbpUsd GBPUSD continues to meander either side of the 1.6250 pivot level, but the bias seems neutral in the nearest term especially as markets await today's BoE meeting. A break above 1.6375 is needed to threaten the bearish outlook of the pair, while key support lies at 1.6125 and resistance at 1.6375 and 1.6484 (previous support).
UsdJpy USDJPY was able to break above the minor 4-day descending channel overnight, and is currently trading sideways within the range 87.70 - 88.50 (88.50 being the 50% retracement of the rally from 84.80 to 90.76), leaving us with neutral bias in the nearest term. If the pair breaks above 88.50 we’ll consider the bearish correction is over and look for targets back towards the post-payroll 90.76 highs. Plenty of support levels on the downside, coming in at 87.10 (61.8% fib retracement level), 86.55 and 85.85.
UsdChf The USDCHF still trading within the minor ascending channel on the hourly chart, so far unable to break above the 1.0300 resistance despite a few attempt post-SNB. A break below 1.0220 is needed to confirm the reversal in the nearest term. Key resistance stands at 1.0337, where a break above would indicate further bullish movement targeting 1.0400-1.0450
Resistance and Support
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot|