- Today’s US PPI and retail sales may provide un updated picture supportive for a December lift-off
- We maintain our position that the real game changer will be the inflation report on November 25th
- With repeated announcement of further QE, EURUSD has a balanced risk as market start to price in a significant US recovery
- Commodity sell-off raising concerns about China's ability to drive global growth
- GBPUSD consolidating above 1,52 putting an end to previous day bull run
- Switzerland, deflation is pressuring the economy
- We believe that EURCHF at 1.0800 is not sustainable as Swiss companies are losing competitiveness
- ECB next QE may strengthen the Swiss Franc and we expect SNB to act
The US dollar strengthened during the Asian session after dollar bulls received a confidence boost from Fed members. New York Fed Chief Dudley appeared to be cautiously optimistic as usual and declared that the conditions for tightening “could be soon satisfied”. Even Chicago Fed Chief Evans, known for his more dovish stance, is starting to sing a different tune as he emphasized the need for a gradual tightening in monetary conditions but still backing a lift-off in 2016. Overall, we see that Fed members have been repeating the same speech for months now as they try to shift focus from the timing of the lift-off to the path which is supposed to be slow and gradual. Meanwhile, traders are impatient to get some fresh data from the US as the economic calendar has been very light this week so far. However, today's PPI report and retail sales will provide an updated picture of the US, which could be supportive for a December lift-off. Nevertheless, we maintain our stance that the real game changer will be the inflation report and specifically the release of the PCE deflator on November 25th. EUR/USD found a strong support at 1.07 and has stabilised between 1.0675 and 1.0830 since then. With Mario Draghi continuing to reiterate that an increase/extension of the BCE’s bond purchase programme is likely, the risk is balanced for the currency pair as the market has already started to price in a significant rebound of the US economy and in case of disappointing numbers, the dollar could erased earlier gains. Retail sales are expected to print at 0.3%m/m, up from 0.1% in September, while the PPI should come in at 0.2%m/m versus -0.5% in the previous month.
On the equity front, stocks are blinking red across the board as spillover from the commodity sell-off raised concerns - once again - about China’s ability to drive global growth. West Texas Intermediate crude is down 6.60% since Monday, while its counterpart from the North Sea fell 7.10% over the same period. Palladium lost almost 13% over the past four days while platinum dropped more than 7%. Copper is down roughly 4% while zinc retreated 4%. Consequently, the Shanghai and the Shenzhen Composite fell 1.43% and 2.39% respectively, while in Hong Kong the Hang Seng dropped 2.17%. In Japan, both the Nikkei and the Topix lost ground as they are down 0.51% and 0.49% respectively. In Europe, the picture is not much brighter with futures pointing towards a lower open. The Footsie is down 0.55%, the DAX 0.48%, the CAC 0.54%, while in Switzerland the SMI falls 0.57%.
EUR/CHF is back above the 1.08 threshold, while USD/CHF finds its marks above its new support, namely parity. GBP/USD consolidates above 1.52, putting an end to the previous day bull run. On the downside, a support can be found at 1.5027 (low from November 6th), while on the upside a resistance lies at 1.5247 (high from November 12th).
***Yann Quelenn, Market Analyst: "The consequences of the abandoning of the Swiss Euro peg remain visible in Switzerland. Deflation is weighing down on the economy. Further evidence of this are today’s producer & import prices, which came in at -6.6% y/y versus -6.8% y/y in September. Growth will continue to be driven to the downside as lower importation prices bring up deflation. To add further fuel to the fire, the Swiss economy, by its own nature of being a safe haven, is deflationist.
Nevertheless, the EURCHF remains at a strong level, around 1.0800, but we believe that this level is not sustainable. Swiss companies are losing competitiveness. For the time being, the pair is mostly driven up by the uncertainties regarding the ECB QE program. Indeed, ECB President Draghi has declared that the central bank is ready to launch measures to boost the Eurozone's recovery as inflation will take longer to return to policymaker’s target. In other words, the money waterfall is set to increase and this will only strengthen the Swiss Franc. The SNB is on tenterhooks, closely monitoring the ECB’s next steps so it can strike into action. Needless to say that in the past five years, the Swiss Central Bank has a track record of acting aggressively. We remain bearish on the EURCHF."***
Today traders will be watching, producer and import price from Switzerland; CPI from Spain; GDP from Italy and the euro zone; retails sales, PPI and Michigan sentiment from the US.