The SNB May Put The Economy On The Edge Of Deep Recession

Analysis by: http://growthaces.com

GROWTHACES.COM Forex Trading Strategies:

Taken Positions:

GBP/USD trading strategy: long at 1.5080, target 1.5350, stop-loss 1.5170

USD/CAD trading strategy: long at 1.1880, target 1.2200, stop-loss 1.1790

NZD/USD trading strategy: long at 0.7690, target 0.8000, stop-loss 0.7730

Pending Orders:

USD/JPY trading strategy: sell at 117.20, if filled target 113.50, stop-loss 118.20

AUD/NZD trading strategy: sell at 1.0680, if filled target 1.0350, stop-loss 1.0760

EUR/CHF: The SNB May Put The Economy On The Edge Of Deep Recession

(buy safe-haven assets)

• The Swiss National Bank unexpectedly scrapped its cap on the CHF. Minutes after the announcement the CHF had soared by almost 30% in value against the EUR.
• SNB vice-chairman Jean-Pierre Danthine said on Monday: “We are convinced that the minimum exchange rate must remain the cornerstone of our monetary policy.” We know now that it was not truth and the credibility of the SNB authorities hit the bottom.
• The SNB said it would further lower the interest rate on sight deposit account balances, by 0.5 percentage points, to −0.75%, above a certain threshold. The SNB said it would also expand its 3-month Libor target range to -1.25% and -0.25% from the previous range of -0.75% to 0.25%.
• The decision of the Swiss monetary authorities may result in a collapse in the banking sector in the Central and Eastern Europe due to high share of CHF mortgages in banks’ loan portfolios, which would be strongly negative for the European economy. Another economic crisis may result in long-lasting deflation that will undercut efforts to reduce the indebtedness of the Euro zone countries.
• That is why the consequence of the SNB’s decision will be increased demand for safe-haven assets. That is why we placed a sell order on the USD/JPY at 117.20 with the target of 113.50 and stop-loss at 118.20

EUR/USD: Investors See Fed’s Hikes Later Than Sooner

(waiting for U.S. CPI tomorrow to get short)

• U. S. retail sales fell 0.9% mom in December vs. expected fall of 0.1% mom and a rise of 0.4% mom in November. Sales excluding automobiles, gasoline, building materials and food services fell 0.4% mom after a 0.6% mom rise in November. Sales last month were weighed down by a 1.6% mom decline in receipts at electronics and appliance stores. Moreover, declining gasoline prices weighed on service station sales, with receipts falling 6.5% mom – the biggest decline since December 2008.
• The Fed’s monthly Beige Book report on business activity showed the economy continued to expand. The report showed most districts reporting a “modest” or “moderate” pace of growth. The reports said that a plunge in energy prices helped consumers spend more freely in November and December. The report said also that significant wage pressures were limited largely to workers with particular technical skills. In line with subdued wage pressures, districts generally reported only slight price increases.
• Philadelphia Fed President Plosser (a hawk) said the Fed should immediately begin the process of normalizing adminstered rates.
• Fed funds future prices suggest the expected rate hike is now out to October vs. September before the release of retail sales data yesterday. Investors begin to realize that the Fed may need to talk down the USD soon to counteract economic slowdown and the only way to that is to minimize the divergence in monetary policies which means delaying rate hikes.
• On the other hand, the Euro zone policymakers keep talking down the EUR. ECB Governing Council member Christian Noyer said the decline in the strength of the euro was normal given the weak growth rate of the euro zone.
• The EUR/USD traders are waiting now for U.S. CPI data tomorrow. Lower-than-expected reading will probably strengthen the EUR/USD and this could be a good opportunity to get short ahead on the EUR/USD.
• Our baseline scenario assumed that a fall of the EUR/USD in reaction to the QE programme will be short-lived and profit-taking could lift the rate soon. We expected the medium-term outlook for the EUR/USD is slightly bullish due to possible delaying rate hikes by the Fed. However, this scenario is under threat after today’s decision of the SNB. There is a risk that a strong crisis in Europe that may be the consequence of the SNB decision may make investors turn into safe-haven assets. This means that the EUR may depreciate further against the USD.

Significant technical analysis’ levels:

Resistance: 1.11845 (10-dma), 1.1871 (high Jan 12), 1.1897 (high Jan 7)

Support: 1.1580 (low Jan 15), 1.1376 (monthly low Nov, 2003), 1.1212 (61.8% of 0.8228-1.6040)

AUD/USD Stronger After Australian Jobs Report

• Australia’s unemployment rate fell to 6.1% in December (vs. 6.3% expected), with 37.4k mostly full- time jobs added (vs. market consensus of 5k). The Australian Bureau of Statistics said there was a rise of 41.6k full-time jobs compared to a drop of 4.1k part-time jobs. The participation rate rose from 64.7 to 64.8%. The AUD/USD jumped 0.8237 after the release.

• The expectations for cuts have strengthened recently. The market suggests that the RBA will cut rates to 2.0% by the end of the year from 2.50% currently. However, the AUD rate has been unaffected by recent changes in expectations. That is why, in our opinion the medium-term outlook for the AUD/USD is slightly bullish. Moreover, strong jobs data led the market to scale back the risk of interest rate cuts in the short term.

Significant technical analysis’ levels:

Resistance: 0.8254 (high Jan 12), 0.8274 (high Dec 16), 0.8299 (high Dec 12)

Support: 0.8139 (21-dma), 0.8136 (10-dma), 0.8068 (low Jan 14)

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