NZD to remain under pressure (by Arnaud Masset)
Janet Yellen took weight off of the RBNZ’s back by increasing the federal fund rate last Wednesday. Indeed, the move will prevent Governor Wheeler from lowering the official cash rate further. As a reminder, the OCR was trimmed four times over the past eight months (from 3.50% to 2.50% on December 10th) in an attempt to boost exports and to bring inflation back within the 1%-3% target range. Looking at the latest projections, the RBNZ pushed back the timeframe for reaching the inflation target by roughly one year compared to the previous forecast on falling crude oil prices. In its MPS from December, the RBNZ expects headline CPI to reach the bottom of the target range in early 2016 and to move toward the mid-point at the very end of 2017.
In spite of this drawback, the RBNZ is more optimistic on growth as it revised higher its forecast. Despite a fall in dairy prices and, to some extent, a decline of prices foe forestry and meat products, the central bank increases its GDP forecast for 2016 from 2.1% to 2.2% and from 2.5% to 2.9% for 2017, compared to September’s estimates, as the central bank expect a pick-up in export prices and strong population growth. Overall, we expect commodity currencies to remain under pressure in the foreseeable future as the slowdown of the Chinese economy will continue to weigh on global demand, and therefore prices. In the wake of the Fed historic decision, theKiwi fell roughly 1.50%, down to $0.67. We expect the NZD to remain exposed to selling pressure due to the country’s high dependency on external demand. A strong resistance can be found at 0.6897 (high from October 15th). On the downside, the low from November 18th at 0.6430 will act as support.
BoJ adjusts its monetary program (by Yann Quelenn)
The Bank of Japan has kept its monetary base unchanged for 2016, which will remain at the annual pace of 80 trillion yen. Nevertheless, the average maturity of its Japan government bond holdings will be increased to 7-12 years from 7-10 years and the central bank has surprised financial markets by announcing Exchange Traded Funds purchases will be increased. Under this new program, the BoJ will increase its ETFs purchases by yen 300 billion which account for the time being for around 3 trillion yen.
Kuroda tried to instil confidence in the Japanese economy after recent data (business confidence, capital spending) surpassed expectations. We believe that the BoJ, despite this attitude, is only trying to find more ways to stimulate the economy as the current program is clearly not sufficient. The era of free money will continue and except for recent positive data such as improved business confidence, we have the impression that the BoJ is entering an all-in stage. The truth is that “Abenomics” is failing and confidence in the economy should not be mixed up with the results that this economy is providing. We remain bearish on the Japanese currency and target the yen 125 against the greenback over the medium-term.
Happy Holidays
2015 has been a fascinating year, full of ups and downs. We can’t wait to see what 2016 holds for financial markets. In order be fresh and ready to tackle the new year demands, production of the Daily Market Brief will be paused from Dec 18th through Jan 4th. Should any issues arise, please feel free to call the Strategy Desk. Until then enjoy your holiday season and we look forward to working with you in the new year.
AUD/USD: Bearish Breakout
Today's Key IssuesCountry / GMT The Risk Today
EUR/USD has bounced back from hourly support at 1.0796 (07/12/2015 low). Stronger support lies at 1.0524 (03/12/2015 low). Expected to target resistance at 1.1096. 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's medium-term downside momentum remains lively. The pair is riding the downtrend channel. Hourly resistance is given at 1.5242 (13/12/2015 high). Stronger resistance can be found at 1.5336 (19/11/2015 high). Hourly support at 1.4985 (02/12/2015 low) has been broken. Expected to further bounce back. 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 has moved strongly up and down after BoJ meeting. Hourly support can be found at 120.07 (28/10/2015 low). Hourly resistance lies at 123.76(18/11/2015 high) has been broken. Expected to further consolidate. 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 is rising toward hourly resistance at 1.0034 (04/12/2015 high). Hourly support can be found at 0.9786 (14/12/2015 low). Yet, the short-term technical structure shows an upside move. Expected to show further consolidation. 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:
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