Better labour data in Germany, RBNZ set to ease again

Germany’s recovery: inflation is leading the path (by Yann Quelenn)

Europe’s leading economy is experiencing mixed data, while inflation continues to pick up. October figures were released at 0.8% y/y late last week - the highest level in two years. However, mixed feelings prevail regarding the country’s annual retail sales performance, which is highly volatile. Annualized data printed well below expectations at 0.4% y/y versus 1.5%. Commercial activity is not strong enough to support sustainable growth. On the labour side, unemployment declined today to 6.0% from 6.1%, which is nevertheless significant.

While Germany is not doing particularly well, all eyes are on the ECB and its next moves on 8th December. Markets are clearly expecting that the QE program will be extended after March.

Meanwhile the 10-year bund has reached its highest level in five months, after October marked its highest monthly rise since 2013. Although markets are pricing in a better economic outlook due to the uptick in inflation, other data is still on the soft side. This bounce in bonds yields will be temporary and only last until the next ECB meeting. The German and Eurozone economies are at a very fragile point.

RBNZ still on track to cut rates again (by Arnaud Masset)

The New Zealand dollar spiked last night amid a better-than-expected job report. The unemployment rate fell to 4.9% in the first quarter, the lowest level since 2008. More surprisingly, this improvement in employment came on the back of a rise in the participation rate (up to 70.1% from 69.7% in the second quarter) and strong growth in employment (+1.4%q/q or +35k jobs). However, for now the positive trend in employment has not translated into wages as wage growth remained subdued over the September quarter. Average hourly earnings grew 0.3%q/q, widely missing estimates of 1% and below the previous reading of 0.8%. With persistently weak inflationary pressure, the RBNZ would more than welcome some help from the job market.

The Reserve Bank of New Zealand is expected to cut the official cash rate by 25bps to 1.75% at its next monetary policy meeting on November 9th. The market already began pricing in an easing move during October when NZD/USD fell more than 2%. However, mixed economic data from the US and rising uncertainty about the US election had pushed investors out of long USD positions. Moreover, interest rate differentials between New Zealand and the rest of the G10 countries keep attracting investors who are desperately seeking yields. Over the last few days, the Kiwi has jumped back to 0.7250, prompting the RBNZ to further ease.

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Gold -Bullish Breakout.

EURUSD

EUR/USD keeps pushing higher. Strong resistance at 1.1058 (13/10/2016 high) has been broken. Key resistance is located far away at 1.1352 (18/08/2016 high). Expected to further strengthen. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.

GBPUSD

GBP/USD's short-term momentum is bullish. Hourly support is given at 1.2083 (25/10/2016 low) while hourly resistance lies at 1.2329 (11/10/2016 high). Key resistance stands far away at 1.2620 then 1.2873 (03/10/2016). Expected to monitor resistance at 1.2329. 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 momentum is turning negative. Hourly support at 102.81 (10/10/2016 low) is approaching while hourly resistance is given at 105.53 (28/10/2016). Next key resistance lies at 107.49 (21/07/2016 high). Key support can be found at 100.09 (27/09/2016). 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's bullish momentum has ended. Hourly support located at 0.9843 (20/10/2016 low) has been broken. Stronger support lies at 0.9632 (26/08/2016 base low) while resistance area is given around the parity. Expected to monitor support at 0.9632. 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