US Healthcare Vote And CBR Rate Decision In Focus

News and Events:

USD in the doldrums ahead of key vote

The end of the week was particularly tense in the FX market after the much-awaited vote from the House of Representatives on the plan to repeal and replace parts of the Affordable Care Act. The US dollar has been trading in a volatile range against most of its counterparts as market participants grow impatient. It may seem surprising that the market is monitoring closely the development of this specific subject as it will not be a game changer for the US economy. In fact, it is widely seen as a test for Donald Trump and his ability to pass the promised reforms. In short, if Obamacare is not repealed, it will seriously damage the market’s confidence and would most likely trigger a sell-off in the equity market and increase selling pressure on the USD.

After sliding 0.25% during the Asian session, the single currency rapidly returned above the 1.08 threshold as European traders stepped in. The dollar index was in free fall as it tumbled 0.30% in a couple of hours to reach 99.697. EUR/USD is currently testing a key resistance area at around 1.08 (Fibo 38.2% on May 2016 – January 2017 debasement at 1.0828 and previous highs); if broken the door is wide open towards 1.10.

Russia set to hold rates unchanged at 10%

The Central Bank of Russia is due to announce its key rate decision later this morning but we believe that rates will remain unchanged at 10%.

The ruble has been strengthening since the beginning of the year, providing some room for the central bank to lower rates, but we think that inflation expectations are still too high. Even though inflation is dropping at a fast pace it still lies at 4.4% y/y and should prevent the central bank from lowering rates to 9.75%.

The CBR’s cautiousness since its last meeting was mostly due to the Fed hiking rates and although dollar demand should strengthen, the ruble has been performing well. Nevertheless, weaker global oil prices are adding downside pressures on the ruble.

Finally, global uncertainties continue to linger and the central bank has already announced that it will not rush to cut rates. It is likely that policymakers are waiting for GDP to enter positive territory before making any serious moves. For the time being, we maintain our bullish stance on the ruble.

Today’s Key Issues (time in GMT):

• Mar P Markit France Manufacturing PMI, exp 52,4, last 52,2 EUR / 08:00
• Mar P Markit France Services PMI, exp 56,1, last 56,4 EUR / 08:00
• Mar P Markit France Composite PMI, exp 55,8, last 55,9 EUR / 08:00
• mars.17 Money Supply Narrow Def, last 8.86t RUB / 08:00
• Feb PPI MoM, last 1,90% EUR / 08:00
• Feb PPI YoY, last 7,50%, rev 7,60% EUR / 08:00
• Italy’s Padoan, EU’s Dombrovkis Meet in Rome EUR / 08:00
• Mar P Markit/BME Germany Manufacturing PMI, exp 56,5, last 56,8 EUR / 08:30
• Mar P Markit Germany Services PMI, exp 54,5, last 54,4 EUR / 08:30
• Mar P Markit/BME Germany Composite PMI, exp 56, last 56,1 EUR / 08:30
• Mar P Markit Eurozone Manufacturing PMI, exp 55,3, last 55,4 EUR / 09:00
• Mar P Markit Eurozone Services PMI, exp 55,3, last 55,5 EUR / 09:00
• Mar P Markit Eurozone Composite PMI, exp 55,8, last 56 EUR / 09:00
• Feb BBA Loans for House Purchase, exp 44900, last 44657, rev 44142 GBP / 09:30
• ECB’s Angeloni speaks in Milan EUR / 10:15
• mars.24 Key Rate, exp 10,00%, last 10,00% RUB / 10:30
• Fed’s Evans Speaks at Community Development Event USD / 12:00
• Bank of Russia Governor Nabiullina holds news conference RUB / 12:00
• Feb CPI NSA MoM, exp 0,20%, last 0,90% CAD / 12:30
• Feb CPI YoY, exp 2,10%, last 2,10% CAD / 12:30
• Feb CPI Core- Common YoY%, last 1,30% CAD / 12:30
• Feb CPI Core- Median YoY%, last 1,90% CAD / 12:30
• Feb P Durable Goods Orders, exp 1,30%, last 2,00% USD / 12:30
• Feb CPI Core- Trim YoY%, last 1,70% CAD / 12:30
• Feb P Durables Ex Transportation, exp 0,60%, last 0,00% USD / 12:30
• Feb Consumer Price Index, last 129,5 CAD / 12:30
• Feb P Cap Goods Orders Nondef Ex Air, exp 0,50%, last -0,10% USD / 12:30
• Feb P Cap Goods Ship Nondef Ex Air, exp 0,20%, last -0,40% USD / 12:30
• Fed’s Bullard to Speak to Economic Club of Memphis USD / 13:05
• Feb Current Account Balance, exp $0m, last -$5085m BRL / 13:30
• Feb Foreign Direct Investment, exp $5000m, last $11528m BRL / 13:30
• Mar P Markit US Manufacturing PMI, exp 54,8, last 54,2 USD / 13:45
• Mar P Markit US Services PMI, exp 54, last 53,8 USD / 13:45
• Mar P Markit US Composite PMI, last 54,1 USD / 13:45
• Revisions: Wholesale sales and inventories USD / 14:00
• Fed’s Dudley Speaks in New York at York College USD / 14:00
• Feb Total Jobseekers, exp 3457.0k, last 3467.9k EUR / 17:00
• Feb Jobseekers Net Change, exp -10, last 0,8 EUR / 17:00
• Fed’s Williams Speaks in Q&A USD / 17:30
• Feb Tax Collections, exp 93000m, last 137392m BRL / 22:00

The Risk Today:

EUR/USD keeps on pushing higher, even though the pair is now pausing around 1.0800. A break of the upside channel would signal persistent buying pressures. Key resistance is given at a distance 1.0874 (08/12/2017 high). Strong support can be found at 1.0493 (22/02/2017 low). The technical structure suggests deeper increase towards resistance at 1.0874. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD now lies in a short-term uptrend channel. There are rooms for further strength. Hourly resistance is located at 1.2570 (24/02/2017 high). Hourly support is given at 1.2324 (03/17/2017 low). Expected to show continued strength. 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 has failed to break key resistance given at 115.62 (19/01/2016 high) confirming persistent selling pressures. The pair has broken strong support at 111.36 (28/11/2016 low). Hourly resistance can be located at 113.57 (16/03/2017 high). 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 is declining. Hourly support is given at 0.9862 (31/01/2017 low). Key resistance can be found at a distance at 1.0344 (15/12/2016 high). Expected to show continued weakness. 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.