US CPI, Markets Await ECB Hints For 2017

News and Events:

Markets expecting ECB hints for 2017

This afternoon, the ECB will publish its account regarding the October policy meeting. Markets are still waiting for some hints about the future of the monetary policy after March 2017. However, financial markets have already priced in that the current program should be extended beyond March. ECB President Mario Draghi has refused so far to announce any change as he certainly believes that the Fed rate hike would provide further relief to the single currency and add upside inflation pressures. He certainly wants to be as flexible as possible until the next ECB meeting which will be held in December and which will then be very significant.

For the time being, Eurozone inflation is close to 0% and the asset-purchase program should remain around 80 billion euros per month. But there is one major issue at the moment: markets are quite concerned about the feasibility of such a decision as the scarcity of bonds remains a growing issue. The deposit facility rate is currently at -0.4% and the European institution is obliged to buy bonds yielding less than this level. This is why it would definitely help the ECB by removing this rule. On top of that the QE program also restricts the European institution to buy more than 33% of a country’s debt. We believe that the ECB is too far to stop its QE program now and we believe that this alternative solution is becoming more likely to improve the scarcity of bonds.

Market awaits CPI data

It is going to be a key day for the USD today as the last consumer price index is due for release later this afternoon, while Janet Yellen will testify before the Economic Committee of Congress. Now that the US economy is getting closer to reach “full employment” according to the Fed, the market has been increasingly focus on the inflation figures, which has been seen as the missing piece for another rate hike. The consumer price index for October will be released at GMT 1:30PM today is expected to have risen by 1.6%y/y, up from 1.5% in the previous month. The core measure, which excludes food and energy prices, should have remained stable at 2.2%y/y.

According to the Fed funds futures, the probability of a rate hike at the December meeting has reached 94% yesterday. A tightening in monetary conditions in the US is therefore a done deal now and this is already fully priced in financial markets. That is why the risk is essential on the downside for the USD as a dovish surprise from the Fed on December 14th could trigger a sell-off in the USD. I am not about a decision to stand idle but if the dot plots showed that Fed members revised their rate hike expectations massively to the downside, it could send a negative signal to investors as it will show the Fed is becoming less optimistic about the US outlook. This morning the US dollar extended losses against major currencies ahead of Yellen speech and inflation data. EUR/USD rose to 1.0735.

Today’s Key Issues (time in GMT):

• Oct Retail Sales Ex Auto Fuel MoM, exp 0,40%, last 0,00% GBP / 09:30



• Oct Retail Sales Ex Auto Fuel YoY, exp 5,40%, last 4,00% GBP / 09:30



• Oct Retail Sales Inc Auto Fuel MoM, exp 0,50%, last 0,00% GBP / 09:30



• Oct Retail Sales Inc Auto Fuel YoY, exp 5,30%, last 4,10% GBP / 09:30



• Oct CPI MoM, exp 0,30%, last 0,40%, rev 0,40% EUR / 10:00



• Oct F CPI YoY, exp 0,50%, last 0,40%, rev 0,40% EUR / 10:00



• Oct F CPI Core YoY, exp 0,80%, last 0,80% EUR / 10:00



• Sep Economic Activity MoM, exp 0,20%, last -0,91% BRL / 10:30



• Sep Economic Activity YoY, exp -3,70%, last -2,72% BRL / 10:30



• nov..11 Foreigners Net Stock Invest, last -$12m TRY / 11:30



• nov..11 Foreigners Net Bond Invest, last -$107m TRY / 11:30



• ECB Publishes Account of Monetary-Policy Meeting EUR / 12:30



• nov..11 Gold and Forex Reserve, last 395.7b RUB / 13:00



• Yellen Testifies to Joint Economic Committee on Economy USD / 13:00



• Sep Int’l Securities Transactions, last 12.74b CAD / 13:30



• Oct Housing Starts, exp 1156k, last 1047k USD / 13:30



• Oct Housing Starts MoM, exp 10,40%, last -9,00% USD / 13:30



• Oct Building Permits, exp 1193k, last 1225k USD / 13:30



• Oct Building Permits MoM, exp -2,70%, last 6,30% USD / 13:30



• Oct CPI MoM, exp 0,40%, last 0,30% USD / 13:30



• Oct CPI Ex Food and Energy MoM, exp 0,20%, last 0,10% USD / 13:30



• Oct CPI YoY, exp 1,60%, last 1,50% USD / 13:30



• Oct CPI Ex Food and Energy YoY, exp 2,20%, last 2,20% USD / 13:30



• Oct CPI Index NSA, exp 241,785, last 241,428 USD / 13:30



• Oct CPI Core Index SA, exp 249,058, last 248,611 USD / 13:30



• Oct Real Avg Weekly Earnings YoY, last 0,80%, rev 0,90% USD / 13:30



• nov..12 Initial Jobless Claims, exp 257k, last 254k USD / 13:30



• nov..05 Continuing Claims, exp 2030k, last 2041k USD / 13:30



• Nov Philadelphia Fed Business Outlook, exp 7,8, last 9,7 USD / 13:30



• Bloomberg Nov. United States Economic Survey USD / 13:45



• Fed’s Dudley Gives Welcoming Remarks at Conference in New York USD / 13:50



• Fed’s Dudley Gives Welcoming Remarks at Conference in New York USD / 14:10



• Nov Bloomberg Economic Expectations, last 45 USD / 14:45



• nov..13 Bloomberg Consumer Comfort, last 45,1 USD / 14:45



• Bank of Canada releases Review collection of research papers CAD / 15:30



• SNB Board Member Andrea Maechler Speaks in Geneva CHF / 17:00



• Fed’s Brainard Speaks in New York USD / 17:30



• Oct PPI YoY, last -1,10% KRW / 21:00



• ECB’s Praet Speaks in New York EUR / 21:45



• Oct Tax Collections, exp 110000m, last 94770m BRL / 23:00



• Oct Formal Job Creation Total, exp -85000, last -39282 BRL / 23:00



• Frankfurt Hosts Euro Finance Week Conference EUR / 23:00

The Risk Today:

EUR/USD is consolidating around 1.0700. Hourly resistance is given at 1.0816 (15/11/2016 high). The technical structure suggests further decline. Expected to see continued bearish pressures. 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).

GBP/USD has exited medium-term uptrend channel. Resistance stands far away at 1.2674 (11/11/2016 high). Expected to see confirmation of a new bearish trend by breaking hourly resistance lies at 1.2380 (15/11/2016 low). 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.

USD/JPY ‘s buying pressures are still important despite ongoing consolidation. Hourly resistance now lies at 109.76 (16/11/2016 high) while hourly support lies at 107.77 (15/11/2016 low). Key support can be found at 100.09 (27/09/2016). 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).

USD/CHF‘s buying pressures are important. Yet, some profit taking are likely to start and we may expect further retracement. Hourly resistance lies at 1.0058 (16/11/2016 high) while hourly support is given at 0.9929 (15/11/2016 low). 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.

EURUSD	GBPUSD	USDCHF	USDJPY
1.1300	1.2857	1.0328	121.69
1.1259	1.2771	1.0257	114.87
1.0954	1.2674	1.0093	111.91
1.0691	1.2425	1.0026	109.28
1.0666	1.2083	0.9632	106.14
1.0524	1.1841	0.9522	104.97
1.0458	1.0520	0.9444	101.20

US CPI, Markets Await ECB Hints For 2017