USD/CNH rises, FOMC meeting in focus

Chinese yuan in freefall (by Arnaud Masset)

Since Donald Trump’s election, the Chinese yuan has suffered a massive sell-off in expectation of tougher trade relations between the world’s two largest economies. Indeed, the US is China’s main trade partner, representing more than $480bn worth of exports (2015), while the US imports “only” $145bn worth of Chinese products. Therefore, growing protectionism under a Trump presidency could significantly hurt the Chinese economy, which is still heavily export-dependent. Needless to say, the imposition of punitive tariffs on Chinese imports would also have significant implications for the US economy. For now, they are just words and the market is still trying to estimate how far Trump will go and in fact, whether he will actually do anything at all. Indeed, since November 9th, president-elect Trump has already begun to soften some of his initial positions, namely those concerning Obamacare and immigration. This uncertainty is adding to the yuan’s woe as it accelerates the sell-off and added pressure on the PBoC, which is already struggling with capital outflow. The CNH is continuing its freefall against the greenback with USD/CNH hitting 6.9330 this morning. As we head into 2017, we expect further yuan weakness as the country will continue to face slowing exports and capital outflow. Moreover, tougher trade relations with the US could darken the bigger picture.

What to expect from the FOMC Minutes (by Yann Quelenn)

Tonight, the Fed will release its October meeting minutes though we believe that it should not have any impact on the dollar valuation. A December rate hike is fully priced in by markets and only a surprise could prevent the Fed from normalising interest rates.

What really matters to us at this point from the minutes is inflation. Since Trump's election, inflation expectations have really picked up, which is in line with our view of growing inflation in 2017. We just recall that core inflation (CPI without food & energy prices) is above the Fed’s target for the last 12 months.

The Fed should maintain their hawkish view, even next year and we believe that it is very likely that we will see the Fed widening the spread between nominal and real interest rates in order to kill the country’s massive debt.

Data-wise, October core durable goods orders will be released and are expected to rise 1.7% m/m. This increase is however attributable to aircraft orders and so may only be temporary. For the time being, the dollar should remain at this current level against the single currency until the Fed meeting. By then, speculations about next year's monetary policy are likely to start.

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USD/JPY - Bullish Pause.

EURUSD

EUR/USD's buying pressures are back. Hourly resistance is given at 1.0652 (intraday high). The technical structure suggests that selling pressures are fading. A break of resistance at 1.0746 (17/11/2016 high) is needed to confirm a reversal. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support is given at 1.0458 (16/03/2015 low).

GBPUSD

GBP/USD is not having enough momentum to reach resistance at 1.2674 (11/11/2016 high). Hourly support is given at 1.2302 (18/11/2016 low).Expected to see continued weakness. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USDJPY

USD/JPY's bullish momentum has paused forming resistance above 111. Hourly resistance is given at 111.18 (21/11/2016 high). Support is given around 109.80 (16/11/2016 low). Stronger support lies at 108.56 (17/11/2016 low). Expected to see further upside moves. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USDCHF

USD/CHF rally has stalled yet technicals remains strongly bullish. Hourly resistance is given at 1.0134 (22/11/2016 high). Expected to see continued consolidation. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

Resistance and Support