CHF, JPY and the burden of a Safe Haven currency

One week after the so discussed UK’s referendum, the after-Brexit is demonstrating to be as difficult as expensive, both for UK and the majority of the EU Countries, with fluctuating markets and volatile foreign exchange markets.

To make the biggest expenses, however, seems to be accidentally the Swiss Franc and the Yen, two Safe Haven currencies, the ones for definition that are purchased during uncertainty, and that feed the Carry Trade during risk-on periods. Lets see what is happening right now.

At the time of writing the SNB decided to intervene on the markets in order to restrain the uptrend for the Helvetic currency which, after the UK’s referendum, inverted his downward trend started a few months ago and beloved by the Swiss National Bank. The upside move has been feeded by the investors purchases who, buying Franc on the market, led the price up, threatening the final objective of the SNB which doesn’t want a too costly franc, which would hinder export and tourism.

While at the beginning of June the EUR/CHF was at  1.10-1.11 level, the latest weeks led down the cross towards 1.06 before the SNB intervention to bring the pair at the actual 1.08.

A CHF appreciation not only against Euro, but also, obviously, against the Sterling, with the GBP/CHF cross which came to touch 1.31, while nothing to say about the US Dollar which remains almost at the same level.

It seems that the Switzerland is now (again) victim of its success, with the SNB in the uncomfortable position to want a weak Franc, against the market that don’t want to stop the Franc purchases. President Jordan in the meantime, confirm that the Bank is still ready to act at every moment, but the SNB balance sheet is starting to be difficult to sustain.

SNB Chairman Jordan talks to the media during a news conference in Bern

Swiss National Bank (SNB) Chairman Thomas Jordan talks to the media during a news conference in Bern, Switzerland April 6, 2016. REUTERS/Ruben Sprich

Very close situation for the Yen, with the Japanese government strongly undecided if intervene or not on the market in order to slow down the appreciation of its local currency which started to increase his price following the Brexit decision. Last Friday the Japanese currency broke the 100 level with the Dollar (and the 110 one with Euro) which represent a limit after which the BOJ should intervene.

The Yen has moved to the Spring 2013 level, canceling the Japanese quantitative easing effects and threatening export and profits of big companies, such as automakers. (without counting effects on the inflation expectations).

From the good manners, with verbal warnings from PM Abe, they could go to the hard ones with a real move from the BOJ which is now also penalized from the Trump’s US campaign, who defined China and even Tokyo manipulators of the exchange rates.

In the meantime big banks like Nomura and HSBS reduced their expectations for the exchange rate from 122 to 104, the first, and to 95 the second.

This time the blame is not referred to the Abenomics, but the credibility of the commitments regarding financial improvements and growth of the Country seems fading.

 

japan-unleashed-abenomics-a-year-and-a-half-ago--heres-how-its-going

The never-ending drop of the GBP after the Brexit

After the last week’s shocking referendum on the Brexit, which brings the UK out of the EU, the Sterling extends his drop, bringing the Cable at around 1,3400, one of the lowest level in 30 years.

All the news regarding the disastrous effects of the win of the “Leave” during all the weekend, moreover, fueled the bad market sentiment on the GBP. At the moment the investors attention is addressed at the today’s meeting between Renzi, Merkel, Hollande and Tusk, and the possibility of the UK to go to the Article 50.

brexit-1

The ECB in the meantime, after having stated that it will remain close to all the central banks and private sector, continue to closely monitor the financial markets not denying the possibility of giving additional liquidity in case it would be necessary, both in Euro and in other currencies (position also shared by the Scandinavian banks).

Governor Carney moreover added that in the coming weeks, the ECB could act in order to re-equilibrate the shocks after the referendum, however reiterate that they don’t expect an emergency cut: the monetary policy moves will remain the same with a credit easing during the 14th July meeting, followed by a rate cut in August.

GBP:USD 27giu

Looking at the Cable’s chart, it is easy to see some interesting levels: considering the actual loss of 2.06% which is bringing the cross to trade at 1,3398, a braking of the lower level touched after the referendum’s exit pools last 24 June at 1,3324, could open the street to a more important drop to 1,3000 (psychological support).

GOLD: the second consecutive downside move

Gold is currently moving to the downside for the second consecutive session today, on the back of the news coming from GB regarding the Brexit referendum which continue to undermine the safe-haven demand, and consequently the precious metal one.

At the time of writing the commodity is traded little under $1.284, after (virtually) derided most of the Monday’s gain. Despite this, Gold remains far under the psychological level of $1.300, favored by a weak US Dollar which is limiting the downside.

Brexit developments during next hours will continue to dominate the headlines, guiding investors risk sentiment, while the market today could be interested in the Yellen’s speech on late NY session, after the Senate Banking Committee, which could be a good occasion to get in by the short-term traders.

GOLD 21Jun

Keeping an eye on the chart it is possible to see some interesting levels: the support positioned at $1.275 is the first hurdle to the downside, after which the correction could go to the $1.260 level.

Otherwise, in case Gold would reverse its trend going on the positive ground, the first immediate resistance is at $1.292 broken which there will be no obstacles until the important psychological level at $1.300.

 

Rebound of the EUR/USD and the rate hike goes far away

The EUR/USD cross at the moment is experimenting an important rebound from a significant support at 1,1102/1,1058 during Friday after disappointing NFP data. With the pair which is trading at the moment at 1,1340 tracing a negative performance of 0,23%, we can see the next significant resistance at 1,1420 (exactly the center of the channel from here and the April 2016 high at 1,1495). On the negative side, in case the loss will extend, the next support is seen at 1,1216 (25 April low) after which the pair could go next to the 200-day moving average at  1,1102.

EUR:USD 6Jun

With a decreased occupation to 1,7% YoY (which would increase the Q2 productivity data), also the unemployment rate has decreased compatibly with the downside move of the labour force. The initial part of the year, moreover, have seen the participation rate increase, with a lower number of people leaving the labour force, and the GDP which is still on track for the 2% level in Q2 (even if it seems to have lost the initial momentum). Besides those disappointing data, the major concern is the revision of the expectations for the labour market: this will certainly cause a Fed’s reaction, which seems to have removed from the table the possibility of an hike for  the current month.

Yellen this afternoon’s speech will be pretty balanced, after the lately cautiousness seen in topic of monetary policy. I’m waiting for a rhetoric against a rate hike for the near term, but, as often happens, the Fed’s chair could repeat that

“a rate hike during next months would be appropriate”

This could mean a reinforcement of the vision by which the Fed could intervene in September, with a more clear situation of growth, inflation, labour market and global risk.

janetyellen

 

The first negative Gold month of 2016

Despite Gold closed on the upside yesterday’s session, its monthly performance has been almost -6%, making the first bad monthly performance since the beginning of 2016. supporters of this movement the rumors regarding the US rate hike expected for this month (June) which gave a stop to the bullish trend of this year.

The precious metal recovered ground after trading closely to $1.200,00/ounce during Monday’s trading session and at the time of writing it is trading at $1.216/oz with a renewed risk-aversion sentiment on the Brexit fears which push the purchasing of safe haven assets.

An eventful session opening this morning, with two rebounds during the first trading hours following disappointing Chinese PMI data and better short and long term bond yields which weight on the non-interest commodities.

Today’s important data will be a series of report on the US manufacturing sector activity, while tomorrow’s ADP labour data will attract the attention of the market probably influencing the precious metals price action.

GOLD 1June

From a technical point of view:

After a 9-day decline, the yesterday’s recover is not an indicator of the end of the downside move, even considering that the price is still under the 20 and 100 SMA.
On the short term however the sentiment is bullish, with the possibility that soon the commodity would gain the $1.230/oz level.

The first immediate resistance is seen @1.223,50 (100 DMA) followed by the 1.232,10 one. On the opposite side the first significant support is positioned @ 1.210,40 followed by the psychological support at 1.200.