- We do not believe that the failure of the Doha negotiations will push crude oil prices further down as nothing has really changed in the bigger picture
- The risk sentiment deteriorated on Monday after the news of the failure to reach a deal as investors fled to safe haven assets, such as the Japanese yen and the Swiss franc.
- USD/JPY is now heading towards the next support, which stands at 107.63 and then the next one after that is at 105.23
- Brazilian assets will most likely react positively to news of Rouseff's impeachment but we expect the overall risk-off sentiment to cap the potential gains
- The Brazilian real should also open higher higher, with USD/BRL mostly most likely opening below the 3.50 threshold threshold, although we do not expect the pair to move substantially lower as there is absolutely no guarantee that the new government will be able to pass the austerity bills that investors have been asking for month over the last few months
Oil prices collapsed on Monday after major oil producers failed on Sunday to agree an output freeze. The West Texas Intermediate (WTI) fell 4.73% to $38.45 a barrel, while the international gauge, the Brent crude, collapsed 4.64% to $41.10 a barrel. Over the last few days, oil prices have been trading sideways as markets anticipated tough negotiations, with WTI tumbling on the $42-$43 resistance range. Even though the failure of the Doha negotiations highlighted the inability of the major oil producers to find common ground, particularly Iran and Saudi Arabia, we do not believe that this could push crude oil prices further down as nothing has really changed in the bigger picture.
The risk sentiment deteriorates on Monday after news of the failure to reach a deal. Equities were sold off in Asia as investors fled to safe haven assets, such as the Japanese yen and the Swiss franc, to a certain extend. In Japan, the Nikkei and the Topix index slid 3.33% and 3.03%, respectively, while in mainland China, the CSI 300 tumbled 1.35%. Hong Kong’s Hang Seng fell 1.37% and Singapore’s STI slipped 0.70%. In Europe, equity futures were also blinking red across the screen, with the Footsie down -1.07%, the DAX -1.25% and the SMI -0.72%.
In Brazil, after three days of debate, the lower house of congress voted on Sunday to impeach Dilma Rousseff. The Chamber of Deputies voted 367 versus 137 to move forward with the impeachment proceedings. The Senate will now have to vote whether to go ahead with a trial - a simple majority out of the 81 members is required. In the meantime, President Rousseff appealed to the Supreme Court; however, we believe that Brazil’s highest court will not act against the wishes of the majority of Brazilian people who are asking to oust Rousseff. Brazilian assets will most likely react positively to the news but we expect the overall risk-off sentiment to cap the potential gains. The Brazilian real should also open higher with USD/BRL, most likely opening below the 3.50 threshold. However, we do not expect the pair to move substantially lower as there is absolutely no guarantee that the new government - in the event of a successful impeachment - will be able to pass the austerity bills that investors have been asking for over the last few months.
In such an environment, the Japanese yen extended gains in overnight trading as the USD/JPY gapped at open down to 108. The pair is now heading towards the next support, which stands at 107.63 (the low from April 11th). Further south, another support can be found at 105.23 (the low from October 15th last year).
“The Swiss National Bank has now no choice other than to defend the CHF against the still weakening single currency. This week, total sight deposits have increased by CHF 2.8bn to CHF 486.4bn, which is about the same increase than as last week when total sight deposits sharply increased by CHF 2.67bn. There is now growing evidence that the SNB must fight against the overvalued the Swiss Franc.
Indeed, downside pressures on the EURCHF EUR/CHF are set to continue due to the continued continuing ECB monetary policy, policy and fears of a Brexit and Grexit. Even if if, as Thomas Jordan said last Saturday that Saturday, the SNB still has decent sufficient room to “fight significantly overvalued Franc”, we actually do think that the Swiss central bank is trapped and that there are not much tool many tools remaining at their disposal to weaken the CHF. Negative interest rates cannot go much lower or as there is a non-negligible risk of a bank run and we consider that a peg would be way too expensive to maintain as the risk of a euro collapse could trigger unlimited losses.
For the time being, Swiss officials are in a wait-in-see wait-and-see mode, with only slight intervention. interventions likely. They hope seem be hoping for the best and are not prepared for the worst. We remain bearish on the EURCHF.” EUR/CHF.” Yann Quelenn – Market Analyst.
Today’s economic calendar is light, but traders will be watching total sight deposits from Switzerland; weekly trade balance from Brazil; Brazil and Fed’s Dudley and Kashkari’s speech from the US.