BOC Rate Decision, US Jobs Data
Forex News and Events
Australia: Not that bad
Despite a challenging economic backdrop dominated by falling commodity prices and weaker demand from China, the Australian economy continues to adjust successfully to this new environment as it grew 0.9%q/q in the third quarter, beating median forecast of 0.8% and above the previous upward revision of 0.2%. On a year-over-year basis, the GDP is up 2.5% versus 2.4% consensus. The Aussie economy could count on strong net exports, which increase 4.6%q/q compared to a contraction of 3.3% in the June quarter. Moreover, Governor Stevens sounded pretty optimistic about the economic outlook and expected the economy to continue growing at a moderate pace. We expect the Australian dollar to gain positive momentum. However, the prospect of the Fed eventually raising rates limits the upside potential of the Aussie against the US dollar. We therefore favour AUD/NZD or GBP/AUD to take advantage of the Aussie temporary appreciation.
BoC to remain cautious ahead of Fed
The Bank of Canada is expected to keep its policy strategy unchanged at today meeting. With possibility that the US Fed first policy rate increase in almost a decade is only two weeks away, the BoC will choose a wait-and-see strategy. The BoC overnight lending rate should remain at 0.50% while general tone of language should remain dovish. With January Monetary Policy Report still a month away, it’s unlikely a significant shift in direction will transpire. However, headwinds are building around the Canadian economy, indicating that additional easing is an increasing possibility. Exports have mildly rebounded in the GDP data, yet indications suggest that global growth is losing momentum. Domestically, winter has come sooner for the Canadian consumer as domestic demand is already in hibernation mode (another event to be blamed on El Nino) as Retail sales dipped into negative territory at -0.5% m/m. Oil prices are anticipated to stay insipid through 2016 suggesting 4Q GDP is likely to slide from 3Q 2.3% rebound (Sept saw -0.5% contraction m/m as oil extraction fell). The x-factor remains what happens when the Fed increase interest rates. Many are still concerned of a sudden flight of capital from EM and commodity producing nations generating global economic instability. While the BoC has acknowledged that a weak CAD would support export and manufacturing sectors, too much weakness can have significant inflationary effects. As for today, we will be focused the banks view regarding the Fed’s first rate policy-rate and expected impact and thoughts on about further depreciation of the CAD. Given the current environment, we remain bullish on USD/CAD as traders focus will be on 1.3440 resistance.
U.S jobs data ahead ECB’s meeting
ADP Employment Change will come in today. Expectations are for a November employment change of 190K vs 182k in October. Despite spectacular misses over the last few years, and especially last month when NFP printed almost 90k above ADP, it has been often a good indicator of US non-farm payrolls that will be released this Friday. The discussions for December are still very important as a rate hike seems very likely. We believe that the Federal Reserve has to end the zero-interest policy with its credibility now at stake. Over the past few months, there have been plenty of declarations about the health of the U.S economy, in particular that U.S jobs unemployment was stable and that inflation was set to reach its target of 2%.
We continue to think that the U.S economy recovery is overestimated. It is now clear that the overall U.S. economy is based on a massive debt, appraised at $18 trillion. A single dollar of revenues costs at least three times more in debt. We perfectly understand why Fed member Evan’s statement that the “FOMC rate decision makes him nervous.” Indeed, the price of the Fed’s credibility may be very high. EUR/USD is trading around 1.0600. We do not expect high volatility on the markets today as tomorrow ECB’s meeting is already the focus of investors.
Today’s Key Issues
The Risk Today
EUR/USD EUR/USD is still trading around 1.0600 and remains in a downtrend channel. The technical structure is clearly negative. Hourly support lies at 1.0566 (intraday low). Hourly resistance can be found at 1.0763 (19/11/2015 high). Stronger resistance stands at 1.0897 (05/11/2015 high). Expected to break support at 1.0558. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).
GBP/USD GBP/USD‘s downside momentum remain lively. The pair has failed to go any higher after bouncing back from hourly support at 1.4994 (30/11/2015 low). Hourly resistance is given at 1.5336 (19/11/2015 high). Strong resistance can be found at 1.5529 (22/09/2015 high). Expected to monitor support at 1.4994. The long-term technical pattern is negative and favours a further decline towards the key support at 1.5089, as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.
USD/JPY USD/JPY is now rising slightly without real momentum. Hourly resistance is given at 123.76 (18/11/2015 high). Support is located at 122.23 (16/11/2015 low). Expected to fall back to the support at 122.23. 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 USD/CHF is now consolidating and is still trading around its five-year high. Hourly support is given by the lower bound of the uptrend channel around 1.0240 while hourly resistance is given at 1.0328 (27/11/2015 high). If the downtrend channel keeps resisting, we suggest that the upside momentum should continue. In the long-term, the pair has broken resistance at 0.9448 and key resistance at 0.9957 suggesting further uptrend. Key support can be found 0.8986 (30/01/2015 low). As long as these levels hold, a long term bullish bias is favoured.
Resistance and Support