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Sunday, January 17, 2016
Currencies - Strength and Weakness Update
USD: On Monthly basis, USD continues to be the strongest currency long-term.
Fed Interest rate has risen from 0.25% to 0.50% but that however has not given the market movers much confidence in certain currency pairs.
The Federal Open Market Committee(FOMC) plans to assess incoming information in terms of hikes in the future and stressed that tightening would be a gradual process with possible 3-4 further hikes which we can expect during 2016.
FOMC minutes meeting in December showed there was some hesitation about raising rates and some members are concerned about inflation remaining subdued.
ADP Employment for December was at nearly 257k jobs gained, Nonfarm Payrolls were higher than expected but the more important Average Hourly Earnings were flat, and some other Fundamental Announcements such as PMI were lower than previous which showed in lack of strong bullishness in USD.
(above you see a W1(weekly) chart of all USD currency pairs.
In some this last week (candle) from 9.1.16-16.1.16 was hesitant and/or undecisive.)
EUR: continues to be fundamentally weak but not the weakest of other major currencies due to the active easing cycle by the ECB.
On December 3 the ECB cut the deposit rate by 10 bps as was expected, however contrary to expectations the bank did not expand the size of QE and Fundamental Annoucements in December were rather slightly better than expected which made market players to be mostly bullish and rally in EUR.
Consumer Price Index-Core (CPI) for December was lower than expected with the core at 0.8% (Year to Year) and CPI (Year to Year) at 0.2%.
Failure to see a move higher in EU inflation will keep pressure on euro.
(Image above is W1 chart. (One candle represents 1 week of price movement).
GBP: is losing strength long term and GBP has been generally weak in recent weeks as the exchange rate is repriced for a later liftoff date due to subdued inflation and (Producer Price Index) PPI has announced weaker news than expected along with Average Earnings but Retail Sales have been better than expected which is why in some pairs GBP has been holding somewhat strong.
(Image above is W1 chart. (One candle represents 1 week of price movement).
AUD: Aussie has been now for quite some time one of the weakest currencies. In the meanwhile, it seems RBA remains on hold.
AUD central bank is less than likely to cut interest rates until, it is said, they see Q4 inflation data, which is not released until January 27.
RBA may more than likely remain on hold in February if inflation is not the concern.
The employment situation in Australia has been excellent in the last half of 2015, despite a slowdown in the mining sector and Retail Sales.
(Image above is W1 chart. (One candle represents 1 week of price movement).
NZD: has also been one of the weakest currencies as RBNZ cut rates for the fourth time in 2015.
And has been rather consolidating until recently when it turned to be even more bearish due to cut rate from 2.75% to 2.50%.
Dairy prices (Food Price Index) were expected to be an important factor for Kiwi going forward but more important are Electronic Card Retail Sales, Exports/Imports, GDP and consumer survey.
We can anticipate some movement when Consumer Price Index on January 19th for December and RBNZ Interest rate on January 27th are announced.
We anticipate that is less likely that interest rate will change so quickly again due to the fact it has just dropped from 2.75 to 2.50%. However if interest decreases again it can drop NZD even into more weaker territory.
(Image above is W1 chart. (One candle represents 1 week of price movement).
CAD: has been weak at present both fundamentally as technically, despite the fact it has shown better results in December than in November, such as, CPI, they were weaker than expected.
There may be a possibility that the BOC will cut rates in 2016, however in the medium term, CAD direction will be a function of supply and demand of West Texas Intermediate (WTI).
JPY: Although it is said that Japanese economy is failing to show any meaningful signs on recovery since the massive QQE program was implemented, BOJ is watching all fundamental announcements that are coming out such CPI, food & energy and so on, JPY is performing unusually strong and therefore being bulish.
After all, unemployment rate is low, annualized GDP from Q3 has surprised in December with 1% comparing to expected 0.1% and headline 0.3% from expected flat, however Labor Cash Earnings and Retail Trade has underperformed, yet JPY continues to strengthen.
If underlying inflation does not pick up then the BOJ may have to increase the size of its QQE program yet again. The BOJ’s own measure of underlying inflation is at 1.2%, with a target of 2%.
CHF: Swiss Franc is fundamentally second strongest currency given that SNB’s has a negative interest rate (-0.75%), however it is said, it can suddenly rally on safe-haven flows.
It is true that in the past SNB has intervened and kept CHF locked above 1.20. However since January's event in 2015, SNB has let go the CHF and has not dramatically intervened since.
At the moment it is hard to predict what its direction due to SNB's last unannounced news which drastically strengthened CHF and electrocuted the market.
Original source: Jarrat Davis
Edited by: FX KISS™
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