USD broadly lower as risk sentiment improves, Swiss exports collapse
- NZDUSD: Currently testing a key support area between 0.6964 and 0.70 with solid downside potential as RBNZ released a very dovish statement, which clearly sets the stage for an August rate cut
- Yen should continue to lose ground over the next few weeks, although the BoJ’s announcements have historically very little impact on the Japanese currency
- EUR/USD: Although, in the medium-term the technical structure continues to suggest a downside bias, a break of the 1.11 level should revive long EUR positions. In the longer term, the currency pair is still stuck in its monthly range between 1.0913 and 1.1186.
- Swiss exports have collapsed, showing a decline of 3.3 m/m for June - representing a fourth consecutive decline as a result of increasing demand for CHF ahead of the Brexit vote
- CHF, far too strong and largely overvalued to be competitive, which led to the SNB's recent intervention to mitigate upside pressures on the currency
- Luxury manufacturing production has been badly hit. June Swiss watch exports printed at a worrying -16% y/y
- Global slowdown will continue to weigh on the swissie and further SNB intervention will be required with no sign of economic pick-up in sight
Reserve Bank of New Zealand released an economic update on Thursday. The statement was very dovish and clearly set the stage for a rate cut in August. For the kiwi, it was the straw that broke the camel’s back as it dropped another 1% against the greenback during the Asian session. Since mid-July, NZD/USD has fell as much as 5% amid mounting bets for an August rate cut. The currency pair is currently testing a key support area between 0.6964 and 0.70 (low from June 15th and 50dma). The support is holding for now as traders take profit and consolidate positions. However, the kiwi still has solid downside potential as the statement left little doubt about the RBNZ’s next move.
The yen slid further against most G10 currencies, falling 0.60% against the GBP, 0.55% against the Aussie and 0.50% against the single currency. USD/JPY continued to move higher as the market anticipated the Bank of Japan to launch another round of easing. USD/JPY has broken the 106.84 resistance (high from June 23rd) and is now heading towards the next one at around 108 (psychological level and high from June 7th). Even though the yen should continue to lose ground over the next few weeks, the BoJ’s announcements have historically very little impact on the Japanese currency; even worst, the JPY tends to strengthen a couple of days after the announcement of new easing measures.
EUR/USD rose 0.25% in Tokyo amid improving risk sentiment across financial markets. Overnight, the single currency reached 1.1047 against the US dollar. However, on the medium-term the technical structure continues to suggest a downside bias. A break of the 1.11 level should revive long EUR position. On a longer term, the currency pair is still stuck in its monthly range in between 1.0913 and 1.1186.
In the equity market, Asian regional equity markets were blinking green across the screen following the positive lead from Wall Street. In Japan, the Nikkei and Topix indices were up 0.77% and 0.65% respectively. In mainland China, the Shanghai and Shenzhen Composites were up 0.45% and 0.29%, while offshore Hong Kong’s Hang Seng rose 0.97%. In Europe, equity futures are a mixed bag with the Footsie down 0.32%, while the DAXC and CAC were up 0.35% and 0.06% respectively.
Yann Quelenn, market analyst: Swiss exports collapse: "Swiss export data released this morning shows a decline of 3.3 m/m for June, representing a fourth consecutive decline. This could be explained by the increasing demand for CHF ahead of the Brexit vote. The CHF is indeed far too strong to be competitive and so the SNB was consequently obliged to intervene in order to mitigate upside pressures on the currency. Yet, despite this, the swissie continues to remain largely overvalued.
Additional trade data released today includes the trade balance for June, which weakened to CHF 3.55 billion from CHF 3.79 billion on similarly decreasing imports. Indeed Swiss manufacturing production, in particular the luxury industry, has been badly hit with production levels dropping and inputs reduced. Swiss watch exports for example, printed at a worrying -16% y/y for June.
The global slowdown will undoubtedly continue to weigh heavily on the Swiss franc and further SNB action will be required. There is unfortunately no sign of economic respite on the horizon. We remain bearish on the EUR/CHF pair. Yet, the possibility of surprise intervention from the Swiss central bank should not be discounted.”
Today traders will be watching trade balance from Spain; retail sales from the UK; ECB interest rate decision and Draghi’s speech in the euro zone; mid-month inflation report in Brazil; initial jobless claims, Philly business index, existing home sales and leading index; interest rate decision from South Africa (no change expected).
Author: Arnaud Masset