News and Events:
Strong NFP failed to boost USD
Most FX crosses traded sideways on Monday as investors started the week on the back foot amid disappointing data from the world’s largest economy. Even if the NFPs printed substantially stronger than expected, with the US economy creating 227k job during the first month of the year versus 180k median forecast, the weak wage growth figures cast a shadow on the inflationary outlook and the narrative of a faster recovery. Average hourly earnings rose 0.1%m/m in January (0.3% median forecast), while the previous month reading was downwardly revised to 0.2% from 0.4% first estimate. The data suggests a slower path of interest rate increases by the Federal Reserve as the low unemployment rate, according to official data, failed to translate into salary growth which would, in the end, give a boost to inflation. The unemployment rate ticked up to 4.8%, slightly higher than the previous reading and the median forecast of 4.7%, as the participation rate climbed to 62.9% from 62.7%. Similarly, the underemployment rate accelerated to 9.4% in January from 9.2% previously.
December durable goods orders were revised to the downside to -0.5%m/m versus 0.4% first estimate. Excluding transportation, the gauge advanced 0.5% and matched consensus, signalling that the underlying trend in new orders remains solid as US businesses expect the Trump administration to help the manufacturing sector get back on a growth path. On the PMIS side, the Markit gauges came in roughly in line with expectations, while factory orders rose 1.3%m/m versus 0.5% median forecast and -2.3% the previous month.
All in all, we expect the greenback to remain subject to substantial downside, especially due to the emergence of a strong political resistance against some of Donald Trump’s executive orders. Indeed, this lack of broad support along the political forces is a bad omen for the US outlook as it may prove difficult for Trump to pass any key bills that might boost the economy.
SNB total sight deposits increase again
Sight deposits were expected this morning and the release has shown an increase in total sight deposits to CHF 535.2 billion from CHF 532.8billion. We believe that the demand for the Swiss franc as a safe haven remains significant. For the time being, the Helvetic currency is strong and the EURCHF pair lies stalls below 1.0700.
We consider that FX intervention from the SNB is clearly on and should not diminish over the next few months with the elections coming up in France and Germany.
Regarding the economic outlook, swiss fundamental data show that the situation improved. Exports surged in December by 9.9% m/m and inflation is now flat on an annualized basis while it was negative not so long ago.
Nonetheless, the strength of the dollar against the franc has cooled over the last few weeks as Trump mentioned that the dollar may be too strong. A weaker franc against the dollar was a good to trigger further weakness against the euro but it now seems that the trend has reversed and the dollar is weakening, driving the CHF higher.
This year, we consider that the SNB should remain on the edge and willing to intervene. Chairman Thomas Jordan said this weekend in an interview in a German newspaper that the interest rates should remain low in order to keep the differential between major currencies and the franc.
Today’s Key Issues (time in GMT):
- Dec Industrial Production MoM, last 0,50%, rev 0,70% NOK / 07:00
- Dec Industrial Production WDA YoY, last 1,30% NOK / 07:00
- Dec Ind Prod Manufacturing MoM, exp 0,30%, last -0,10% NOK / 07:00
- Dec Ind Prod Manufacturing WDA YoY, last -4,20% NOK / 07:00
- Jan New Car Registrations YoY, last -1,10% GBP / 09:00
- 03.févr. Total Sight Deposits CHF, last 5,33E+11 CHF / 09:00
- 03.févr. Domestic Sight Deposits CHF, last 4,67E+11 CHF / 09:00
- Jan Markit Eurozone Retail PMI, last 50,4 EUR / 09:10
- Feb Sentix Investor Confidence, exp 16,8, last 18,2 EUR / 09:30
- 03.févr. Bloomberg Nanos Confidence, last 56,1 CAD / 15:00
- Jan AiG Perf of Construction Index, last 47 AUD / 22:30
- 05.févr. ANZ Roy Morgan Weekly Consumer Confidence Index, last 118,1 AUD / 22:30
The Risk Today:
EUR/USD‘s momentum has increased sharply. It seems that strong hourly resistance area is given around 1.0800. Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 low). Expected to see continued 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 still trading below resistance given at 1.2771 (05/10/2016 high). The pair keeps on bouncing lower. The technical structure is still anyway showing positive potential. Hourly support is given around 1.2450 (recent lows). Expected to show further bullish move. 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 slowly weakening. Hourly resistance is given at 115.62 (19/01/2016 high). The technical structure suggests further downside momentum. as the break of hourly support given at 112.57 (17/01/2017 low) has confirmed bearish pressures. 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 momentum is definitely bearish. Key resistance is given at a distance at 1.0344 (15/12/2016 high). Closer resistance is given at 0.9935 (03/02/2016 high). The road is clearly wide-open for further decline. 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.