10 hours ago | November 20th, 2014 23:29:34 GMT

Shanghai Securities News: China growth below 7% is acceptable for restructuring

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Shanghai Securities News reports on comments from Li Yining, an economist with Peking University:

  • GDP growth below 7% is acceptable as long as China is able to improve its economic structure
  • Economic structure is more important than size
  • China has paid a price for high growth in the past including environmental pollution, resources depletion and overcapacity

Expectations from Chinese GDP growth continue to be marched lower by all sorts of comments and reports.

11 hours ago | November 20th, 2014 22:44:57 GMT

UBS on the EUR/CHF floor … it would be defended with ‘utmost determination’

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UBS are out with a client note on EUR/CHF … “SNB: Magic Words Failing”.

UBS’s conclusions (bolding mine):

Suspected intervention:

  • Price action over the last few days suggests to us that the SNB might have started to purchase EURCHF to defend the 1.20 EURCHF floor. Next Monday’s weekly sight deposit numbers should give the market the first indication whether these suspicions are true and to what extent. We believe any sizeable increase in sight deposits could boost euro assets such as bonds and equities and weigh on euro crosses, due to investors anticipating SNB diversification trades.

Floor trap:

  • The lack of speculative flow suggests to us that the reason for heavy EURCHF trading is structural, and indeed today’s trade numbers showed yet another record high external surplus. We think traders largely feel unable to go long EURCHF at this point because the tail risk of the floor breaking is looming too large. As a result, the cross could become trapped at current levels with the SNB prompted to be active on a daily basis.

Going negative:

  • Negative deposit rates might be the only way out of the situation as they would give traders renewed incentives to sell Swiss francs. The SNB would probably want to be very cautious and not impose more than 10bp initially but be willing to escalate the measure should it be required. Ultimately we believe the measure should be enough to effectively protect the floor and prevent renewed large scale intervention.

And, one more thing, this from the body of the report … again, bolding mine:

Very few, if any, traders in the market appear to have been willing to take positions against the SNB. On the contrary, speculative flow has largely been supporting the minimum exchange rate. We believe this is because the credibility both of the central bank and of the floor has remained strong. Indeed, the SNB could hardly have been clearer in their recent communication, noting for example in the September quarterly assessment that the economic outlook had ‘deteriorated considerably’ and that the ‘risk of deflation’ had increased. It seems clear that under these circumstances the minimum exchange rate remains critical to the SNB’s monetary policy stance and that it would be defended with ‘utmost determination’.

12 hours ago | November 20th, 2014 22:19:01 GMT

AUD/USD & NZD/USD orders

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AUD/USD

  • Sellers 0.8640 and in layers higher up to 0.8720
  • Buyers 0.8550/60/70, some buyers around 0.8600 again

Currently 0.8621

NZD/USD

  • Sellers 0.7885/0.7900
  • Buyers 0.7800, stop loss selling below

Currently 0.7866

12 hours ago | November 20th, 2014 21:59:23 GMT

ForexLive Americas wrap: Philly Fed takes flight

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Forex news for November 20, 2014:

Traders did a double-take on the huge jump in the Philly Fed and many still don’t believe the huge number. The big story on the day was the inability of the US dollar to rally on good inflation, home sales and the Philly Fed.

The dollar has been hit by profit taking in the past two Fridays and it might have started early. Then again, dollar bulls shouldn’t be discouraged by a single day stall after two months of non-stop gains.

FX ticker

The dollar struggled but little damage was done

Early in Europe, USD/JPY touched 118.98 in a surge of buying but it couldn’t crack the big figure and it began to slid, hitting 118.00 early in US trading. A momentary rally to 118.40 followed CPI but it reversed down to 117.74 — the low of the day. Another rally followed the Philly Fed with the pair hitting 118.30 but again it slid back. The second time it held the low and was on the upswing at the end of the day at 118.12.

On the daily chart, USD/JPY and EUR/JPY (even moreso) are flashing warning signs and potential falling star formations.

EUR/USD was a whippy one, spazing around the 1.2500 to 1.2570 range all day. It’s a bit of a wedge to end the day so a break might be setting up for a good trade. We’ve been hearing lots of talk about cutting shorts (and even some brave longs).

EURUSD techs

Sterling was strong on upbeat retail sales numbers but after hitting the highs of the week at 1.5737 and hitting some buy stops along the way, it fell back to 1.5697. It was still the first time cable made back-to-back gains since October.

USD/CAD was on the defensive as oil rallied and a good Canadian wholesale sales report sent the pair to 1.1300 from 1.1360.

The Australian dollar bounced to 0.8622 from 0.8566.

13 hours ago | November 20th, 2014 21:07:41 GMT

Australia – overnight press – Westpac sees AUD to 92 cents next year

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Overnight in the Australian Financial Review: Aussie to rise to US92¢ next year: Westpac

I had these Westpac comments posted up earlier during our Asian session yesterday here: “AUD is likely to trend higher against the USD”. Check out that link for Westpac’s view on the AUD, if you didn’t see it already yesterday.

But the Australian Financial Review article is ungated so even though it covers the same ground its worth a read (its ungated, link)

They expand with some comments from other analysts.

Roy Teo, a strategist in Singapore at ABN Amro Bank, on iron ore prices (ps. Greg had a great post on this a few days ago with implications for the AUD: Forex Technical Analysis (VIDEO): Trading the Iron Ore vs. AUDUSD relationship)

  • “It will impact the terms of trade for Australia,” , said yesterday. “That is negative for the Aussie.”
  • ABN Amro forecast that the Aussie will decline to US86¢ at the end of December and US78¢ by the end of next year

And … Katrina King, director of research and strategy at QIC:

  • QIC sees a growing risk that US bond yields will fail to climb as the Fed increases its cash benchmark
  • The RBA is right to be concerned that the BOJ’s expanded easing will help keep the Aussie higher than fundamentals warrant by spurring more purchases of Australian debt
  • Estimates that could see monthly inflows from Japan rise by 60 per cent
  • The RBA “will be held on neutral for longer than they otherwise would have been, because the Australian dollar will be held up higher than it otherwise would be from fair value models”

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