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USD Bounces Back As Gold Slides

News and Events:

NZD holds ground as USD takes off

The New Zealand dollar over performed against all of its G10 peers on Tuesday amid an unexpected jump in inflation expectations. Inflation expectations 2-year ahead rose to 1.92%y/y compared to 1.68% in the December report. Similarly, the 1-year ahead measure climbed to 1.56% from 1.29%. The solid pick-up in commodity prices that was initiated early last year is one of the main reasons behind this substantial shift in expectations. Gross national product growth was also boosted to the upside as the survey respondents now expect a 3.11% expansion in two years’ time compared to 2.75% three months ago.

All in all, the solid growth expectations, combined with higher inflation, considerably reduce the likelihood of another rate cut from the Reserve Bank of New Zealand, which had the result of lifting the currency to $0.7376. However, the broad USD rally that has rattled FX markets this morning has evaporated these gains. The currency pair fell below its US session closing price of 0.7320, sliding as low as 0.7291. We maintain our positive bias on the currency pair as the export driven country should continue to take advantage of the stabilisation in commodity prices. The $0.75 level will nevertheless remain a solid resistance that will require more than a short-term weakness in the dollar.

French elections: Marine Le Pen lays out Frexit plans

The French Election are one this first half of the year’s hot topic. The election will take place the 23rd of April and the outcome remains uncertain since Francois Fillon is having deep issues and the ability of Benoit Hamon, the Socialist candidate, to win is very unlikely. For the time being, Marine Le Pen still top polls and she is trying to drive the debate into the exit of France from the European Union. The French candidate wants a “Frexit” Referendum.

It is true that amid the “Brexit”, the promised nightmare is not happening in the UK and the British economic data are on the rise. The fact that the pound devalued is a strong points for exports and it gave some relief to the BoE.

Benoit Coeuré, the ECB member said lately in an interview, that French people do not want to exit the Eurozone. In the same time, Draghi has mentioned that an exit of the EU is possible if and only if a country pay off its “bill”.

We believe that there is definitely room for further euro weakness in the medium-term. Currency war against the greenback, which Trump considers as overvalued, should accelerate.

Advanced Currency Markets - Forex Issues and Risks

Today’s Key Issues (time in GMT):

  • Dec Industrial Production MoM, last 6,60%, rev 5,10% DKK / 08:00
  • Jan Foreign Currency Reserves, exp 646.1b, last 645.3b CHF / 08:00
  • Jan Budget Balance, last -75.2b SEK / 08:30
  • Jan Halifax House Prices MoM, exp 0,00%, last 1,70%, rev 1,60% GBP / 08:30
  • Jan Halifax House Price 3Mths/Year, exp 6,00%, last 6,50% GBP / 08:30
  • Istat Releases the Monthly Economic Note EUR / 09:00
  • Jan SACCI Business Confidence, last 93,8 ZAR / 09:30
  • Jan FGV Inflation IGP-DI MoM, exp 0,48%, last 0,83% BRL / 10:00
  • Jan FGV Inflation IGP-DI YoY, exp 6,01%, last 7,18% BRL / 10:00
  • Jan Official Reserve Assets, exp 386.0b, last 377.7b RUB / 13:00
  • Brazil Central Bank Head Goldfajn Hosts Discussion of Spreads BRL / 13:00
  • Dec Trade Balance, exp -$45.0b, last -$45.2b USD / 13:30
  • Dec Int’l Merchandise Trade, exp 0.20b, last 0.53b CAD / 13:30
  • Dec Building Permits MoM, exp -3,50%, last -0,10% CAD / 13:30
  • BOE’s Forbes Releases Speech GBP / 14:00
  • Dec JOLTS Job Openings, exp 5580, last 5522 USD / 15:00
  • Jan Ivey Purchasing Managers Index SA, last 60,8 CAD / 15:00
  • Bank of France Governor Villeroy de Galhau Speaks in Florence EUR / 16:30
  • ECB’s Weidmann Speaks in Mainz EUR / 16:35
  • Dec Consumer Credit, exp $20.000b, last $24.532b USD / 20:00
  • Jan ANZ Truckometer Heavy MoM, last -0,10% NZD / 21:00

The Risk Today:

EUR/USD‘s selling pressures have increased. 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 towards support given at 1.2254 (19/01/2016 low). 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 is slowly pushing lower. 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 despite ongoing increase. Key resistance is given at a distance at 1.0344 (15/12/2016 high). We believe that 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.

1.1300 1.3445 1.0652 121.69
1.0954 1.3121 1.0344 118.66
1.0874 1.2771 1.0045 115.62
1.0660 1.2366 1.0001 112.37
1.0341 1.2254 0.9680 111.36
1.0000 1.1986 0.9632 106.04
0.9613 1.1841 0.9522 101.20

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