News and Events:
NZD stable despite trade balance miss
Since the RBNZ’s last meeting on February 8th, the New Zealand dollar has been unable to get that positive momentum back. Indeed at its last meeting, the central bank took the market by surprise by delaying any tightening move, brutally interrupting the kiwi’s run that was initiated in late December. Moreover, Donald Trump decision to finally start unveiling his plans for the US economy, is adding some downside risk to the pair as a USD rally would eventually squeeze investors out of long NZD positions. Indeed, in this low-yield environment, investors are desperately seeking higher returns; something that New Zealand is offering.
The kiwi rallied strongly during January and this groundswell has not been without consequences for the economy. Exports beat estimates rising to NZ$4.19bn in January, versus an expected 3.9bn amid a solid recovery in commodity prices. Imports also beat median forecasts and printed at NZ$4.19bn versus an expected 3.90bn as the rising NZD gave higher buying power to local customers. NZD/USD is trading sideways this morning ahead of Trump’s address later today. The market’s expectations are very high and we therefore believe that risk has slightly shifted to the upside. On the downside, a first support stands at 0.7130 (low from February 21st), while on the upside a resistance lies at 0.7247 (high from February 23rd).
Surge in Swiss KoF
The economic barometer will further enforce CHF strengthening, while making the SNB’s job considerably more difficult. In February, the leading indicators increased by 5.2 points to 107.2, indicating that the Swiss economy will grow at a quicker than normal pace. Despite the dire warning of the sharp CHF appreciation in early 2015, the Swiss economic backdrop seems to have weathered the lack of currency competitiveness well. Case in point, the highest contribution came from the manufacturing industry, which relies significantly on exports and therefore currency pricing should be critical to improvement. Data indicates a weakening sensitivity to FX valuations. Moving forwards, the economic improvement in both growth and inflation outlook will enable the SNB to allow greater flexibility in EURCHF pricing. The central bank will continue to move but action will be limited to smoothening rather than reversing the trend. We continue to view short EURCHF as the primary trade for navigating the impending European political uncertainty. EURCHF 1.0632 base support will provide the key test for traders and SNB (providing insight on how much CHF “overvaluation” they are willing handle).
Japanese retail sales positive in no wage growth environment
Since reaching its lowest level in a year against the dollar in December, the yen continues to strengthen. However, the BoJ has been unable to stimulate the economy over the past decade and fundamental data continues to concern. Industrial production came in last night at -0.8% m/m for January after financial markets were expecting a positive read. The yen is strengthening despite its economy being ironically out of control. Japan’s economy is clearly a market risk indicator.
Japanese policymakers are still expecting the Fed to raise rates in order to hold off some pressures from the economy. However, as we believe that the Fed is not going to raise rates we remain cautious as there will clearly be further room for disappointment. Uncertainties over Trump’s economic policies loom large.
It is also worth noting that retail sales have increased for the third consecutive month with a 0.5% m/m for January (1% increase annualized). Furthermore, wage growth slowed in December, which should reflect at some point in the retail sales. The truth is that wages are not at a sufficient level to support the economic recovery especially knowing that, once inflation is stripped away, wage growth for 2016 will in fact be negative.
Today’s Key Issues (time in GMT):
- 4Q P GDP SA QoQ, exp 0,40%, last 0,40% DKK / 08:00
- 4Q P GDP SA YoY, exp 1,90%, last 1,20% DKK / 08:00
- Jan Foreign Tourist Arrivals YoY, last -11,10% TRY / 08:00
- Dec Total Mortgage Lending YoY, last 16,90% EUR / 08:00
- Dec House Mortgage Approvals YoY, last 32,20% EUR / 08:00
- Feb KOF Leading Indicator, exp 102,1, last 101,7, rev 102 CHF / 08:00
- Jan PPI MoM, last 2,10% SEK / 08:30
- Jan PPI YoY, last 6,50% SEK / 08:30
- Jan Trade Balance, exp 1.7b, last 1.0b, rev -0.8b SEK / 08:30
- 4Q GDP QoQ, exp 0,80%, last 0,50%, rev 0,30% SEK / 08:30
- 4Q GDP WDA YoY, exp 2,30%, last 2,80%, rev 2,40% SEK / 08:30
- Dec Wages Non-Manual Workers YoY, last 2,20% SEK / 08:30
- Jan Retail Sales MoM, exp 1,50%, last -2,90%, rev -2,60% SEK / 08:30
- Jan Retail Sales NSA YoY, exp 2,00%, last 0,60%, rev 1,00% SEK / 08:30
- Dec Current Account Balance, last 3.3b EUR / 09:00
- Mar Norges Bank Daily FX Purchases, exp -1000m, last -1000m NOK / 09:00
- BOE’s Charlotte Hogg Speaks at Appointment Hearing in London GBP / 09:15
- Feb P CPI EU Harmonized MoM, exp -0,10%, last -2,00%, rev -1,70% EUR / 10:00
- Feb P CPI NIC incl. tobacco MoM, exp 0,10%, last 0,20%, rev 0,30% EUR / 10:00
- Feb P CPI NIC incl. tobacco YoY, exp 1,30%, last 0,90%, rev 1,00% EUR / 10:00
- Feb P CPI EU Harmonized YoY, exp 1,30%, last 1,00% EUR / 10:00
- Jan Fiscal Deficit INR Crore, last 43254 INR / 11:00
- Dec House Price Index YoY, last 12,26% TRY / 11:30
- Dec House Price Index MoM, last 0,72% TRY / 11:30
- Jan Trade Balance Rand, exp -3.4b, last 12.0b ZAR / 12:00
- Jan South Africa Budget, last 22.7b ZAR / 12:00
- 4Q GVA YoY, exp 6,00%, last 7,10% INR / 12:00
- 4Q GDP YoY, exp 6,10%, last 7,30% INR / 12:00
- 2017 GDP Annual Estimate YoY, exp 6,80%, last 7,90% INR / 12:00
- 4Q S GDP Annualized QoQ, exp 2,10%, last 1,90% USD / 13:30
- 4Q S Personal Consumption, exp 2,60%, last 2,50% USD / 13:30
- 4Q S GDP Price Index, exp 2,10%, last 2,10% USD / 13:30
- Jan Industrial Product Price MoM, exp 0,50%, last 0,40% CAD / 13:30
- 4Q S Core PCE QoQ, exp 1,30%, last 1,30% USD / 13:30
- Jan Raw Materials Price Index MoM, exp 1,20%, last 6,50% CAD / 13:30
- Jan Advance Goods Trade Balance, exp -$66.0b, last -$65.0b, rev -$64.4b USD / 13:30
- Jan P Wholesale Inventories MoM, exp 0,40%, last 1,00% USD / 13:30
- Jan Retail Inventories MoM, last 0,00% USD / 13:30
- Dec S&P CoreLogic CS 20-City MoM SA, exp 0,70%, last 0,88% USD / 14:00
- Dec S&P CoreLogic CS 20-City YoY NSA, exp 5,40%, last 5,27% USD / 14:00
- Dec S&P CoreLogic CS 20-City NSA Index, last 192,14 USD / 14:00
- Dec S&P CoreLogic CS US HPI YoY NSA, last 5,64% USD / 14:00
- Dec S&P CoreLogic CS US HPI NSA Index, last 185,23 USD / 14:00
- Feb Chicago Purchasing Manager, exp 53,5, last 50,3 USD / 14:45
- Bank of England Bond Buying Operation GBP / 14:50
- Feb Conf. Board Consumer Confidence, exp 111, last 111,8 USD / 15:00
- Feb Conf. Board Present Situation, last 129,7 USD / 15:00
- Feb Conf. Board Expectations, last 99,8 USD / 15:00
- Feb Richmond Fed Manufact. Index, exp 10, last 12 USD / 15:00
- Feb QV House Prices YoY, last 13,50% NZD / 16:00
- Finance Minister Padoan, Bank of Italy’s Rossi Speak at Event EUR / 17:00
- BIS’s Caruana Speaks in Geneva CHF / 17:30
- Fed’s Harker Speaks on Economy in Philadelphia USD / 20:00
- Fed’s Williams Speaks in Santa Cruz USD / 20:30
- 4Q Terms of Trade Index QoQ, exp 4,00%, last -1,70% NZD / 21:45
- Feb AiG Perf of Mfg Index, last 51,2 AUD / 22:30
The Risk Today:
EUR/USD is trading sideways within a fifty-pip range below 1.0600. Hourly resistance is given at 1.0679 (16/02/2017 high) while hourly support can be found at 1.0521 (15/02/2017 low). The technical structure suggests deeper consolidation. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.
GBP/USD is trading with some volatility. Hourly resistance is given at 1.2582 (09/02/2017 high) while support area is given around 1.2400. Hourly support is given at 1.2347 (07/02/2017 low). The pair is still lying below strong resistance given at 1.2771 (05/10/2016 high). Expected to see continued monitoring of the support area around 1.2400. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY‘s momentum is bearish. Hourly resistance is given at 115.62 (19/01/2016 high). The technical structure suggests further weakness around support given at 111.36 (28/11/2017 low). We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF‘s short-term momentum is definitely bullish. The pair lies within an uptrend channel. Hourly resistance is implied by upper bound of the uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). Expected to see further strengthening. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.