- WTI is currently testing the previous support at $32.40 as a period of stabilisation is more than necessary to validate the rebound and to prevent prices from collapsing again
- In the context of the rate cut by the RBNZ, we expect the Kiwi won’t go much higher and may find a first support at around 0.6450, while on the upside, the 0.69 remains the strongest resistance
- EUR/CHF is about to test the 1.10 level, USD/CHF managed to stay above parity and is currently trading at around 1.0150 as the bias remains on the upside
- We believe that the Swiss franc will be under pressure as investors return to riskier assets. However, on the short-term, there is upside potential in both USD/CHF and EUR/CHF
- The latest data on sight deposits has shown us that the SNB is clearly not intervening to maintain a stronger EURCHF despite last week’s ECB meeting, which saw a very dovish Mario Draghi
The greenback traded broadly lower throughout the Asian session as risk-off sentiment improved across financial markets. After surging more than 20% from Wednesday’s low, buying interests in crude remained solid on Tuesday. Futures on West Texas Intermediate were up 0.80%after surging more than 20% from Wednesday’s low, while futures on the Brent, gained 0.75% in overnight trading. However, WTI is currently testing the previous support, now resistance that lies at $32.40 (low from December 2008). A period of stabilisation is more than necessary to validate the rebound and to prevent prices from collapsing again.
In Asia, regional equity markets paired gains for a second straight day and validated Friday’s gains. The Japanese Nikkei edged up 0.90%, while the broader Topix index gained 1.34%. In Hong Kong, the Hang Seng climbed 1.51%, while in mainland China, the Shanghai and the Shenzhen Composite rose 0.50% and 0.86% respectively. Finally, in Australia, the S&P/ASX was up 1.84% as commodity stocks recovered.
The New Zealand dollar surged the most in Tokyo, reaching $0.6533. In the context of the rate cut by the RBNZ, we expect that the Kiwi won’t go much higher. Even though most market participants do not expect Governor Wheeler to further ease the Bank’s monetary policy stance, the odds of a rate hike have increased substantially due to the lack of inflationary pressure. NZD/USD will find a first support at around 0.6450; however the real test stands at 0.6348 (low from January 20th). On the upside, the 0.69 remains the strongest resistance.
In Europe, futures equity indices are blinking green across the screen, taking the Asian lead. The Footsie edged up 0.54%, the German DAX surged 2.33%, the CAC 40 climbed 3.10%, while the SMI rose 2.81%. EUR/CHF is holding ground above the 1.09 threshold is about to test the 1.10 level. USD/CHF managed to stay above parity and is currently trading at around 1.0150 as the bias remains on the upside. Overall, we believe that the Swiss franc will be under pressure as investors return to riskier assets. However, on the medium-term, one should keep an eye on the ECB as an increase/extension of the quantitative easing programme appears to be increasingly on the cards. However, on the short-term, there is upside potential in both USD/CHF and EUR/CHF.
***Yann Quelenn, market analyst: “Swiss sight deposits slightly declined: The new sight deposit data that came in this morning showed that the SNB is clearly not intervening to maintain a stronger EURCHF despite last week’s dovish performance from Mario Draghi. The domestic sight deposit declined slightly to CHF 403.1 billion from CHF 403.8 billion last week even though the amount of deposit trend remains positive since the abandoning of the floor just over one year ago. We assume from Draghi’s statements last week that March’s meeting will be more significant with bets on for a review of the current monetary policy and an increase in stimulus (currently €60 million per month). Over the past months, the EURCHF has been slightly grown and is currently trading slightly below 1.1000. The Helvetic currency is still feeling the effects of upside risks due to its safe haven status and current global uncertainties, namely lingering low commodity prices and high geopolitical risks.”***
Today traders will be watching SNB’s sight deposits; IFO survey from Germany; industrial orders and retail sales from Italy; capacity utilization from Turkey; Dallas Fed. Manufacturing Activity from the US; weekly trade balance from Brazil. ECB’s Draghi and Lautenschläger will also give a speech later today.