FOMC Minutes Weighs On USD, Oil Is Set To Rally Further

News and Events:

Less hawkish Fed minutes confuse markets (by Arnaud Masset)

The minutes of the January FOMC meeting did not provide ground breaking information as the essence of the Fed’s message did not change since the previous meeting. Investors were left a little disappointed on reading the transcript as the minutes did not provide further clarity on the institution’s thinking about the US outlook under Trump’s presidency. The Committee reiterated its view that “it might be appropriate to raise the federal funds rate again fairly soon”, should the current trends in the both the labour market and inflation prove sustainable. Nothing new here. The Committee appeared concerned about the current strength of the dollar that could hamper a still fragile economic recovery.

All in all, the slight retracement of the dollar amid the release of the minutes suggests that investors are still unconvinced about a rate hike at the March meeting. In our opinion, the market is overly optimistic about the real state of the US economy. The election of Donald Trump has boosted confidence and sentiment across the board, sending equities to record levels. However, the true nature of this success has yet to reveal itself. The FX market treaded water on Thursday as market participants were still digesting the minutes. Given today’s light economic calendar, further dollar gains appear unlikely; the dollar index should continue to trade within the 101.00-50 area.

Crude prices are pushing higher on declining inventories (by Yann Quelenn)

The WTI crude oil price is still on the rise. The barrel price has gone up above $54 and is almost at its highest level in less than two years. Recent data has shown a decrease in US crude stocks due to less imports. Indeed, inventories have declined by 884k barrels when consensus expected an increase of 3.5M barrels.

There is definitely a clear trend here. The US rigs count is now topping at 751 which is 46% higher than during the same week last year when it was at 597. It is the fifth consecutive straight week. Moreover, markets seem more optimistic since the OPEC confirmed that the output production deal was on track.

We should not forget that it is a plan of the United States to become energetically independent and that the shale gas industry will certainly benefit from upcoming protectionist measures. Trump seems to try to deliver what he promised, which will have a strong impact on crude oil prices.

We target the WTI to reach $60 within the next few months.

Today’s Key Issues (time in GMT):

• 4Q Industry & Construction Output WDA YoY, last 1,10%, rev 1,00% CHF / 08:15
• 4Q Industrial Output WDA YoY, last 0,40%, rev 0,20% CHF / 08:15
• 4Q Total No. of Employees YoY, last 2,50% SEK / 08:30
• ECB’s Praet Speaks in London EUR / 08:55
• Dec Retail Sales MoM, exp 0,20%, last -0,70% EUR / 09:00
• Dec Retail Sales YoY, exp 0,90%, last 0,80% EUR / 09:00
• Jan PPI MoM, exp 1,00%, last 0,50% ZAR / 09:30
• Jan PPI YoY, exp 6,60%, last 7,10% ZAR / 09:30
• Bundesbank Press Conference on Financial Accounts EUR / 10:00
• Feb 22 FGV CPI IPC-S, exp 0,41%, last 0,49% BRL / 11:00
• Feb FGV Inflation IGPM MoM, exp 0,01%, last 0,64% BRL / 11:00
• Feb FGV Inflation IGPM YoY, exp 5,30%, last 6,65% BRL / 11:00
• Feb CBI Retailing Reported Sales, exp 4, last -8 GBP / 11:00
• Feb CBI Total Dist. Reported Sales, exp 24, last 26 GBP / 11:00
• ECB’s Praet Speaks in London EUR / 11:00
• Feb 17 Foreigners Net Bond Invest, last -$262m TRY / 11:30
• Feb 17 Foreigners Net Stock Invest, last $121m TRY / 11:30
• ECB’s Praet Speaks in London EUR / 13:00
• Jan Outstanding Loans MoM, last 0,10% BRL / 13:30
• Jan Total Outstanding Loans, last 3107b, rev 3106b BRL / 13:30
• Jan Personal Loan Default Rate, last 6,00% BRL / 13:30
• Jan Chicago Fed Nat Activity Index, exp 0, last 0,14 USD / 13:30
• Feb 18 Initial Jobless Claims, exp 240k, last 239k USD / 13:30
• Feb 11 Continuing Claims, exp 2068k, last 2076k USD / 13:30
• Fed’s Lockhart to Speak on His 10-Year Tenure at the Fed USD / 13:35
• 4Q House Price Purchase Index QoQ, last 1,50% USD / 14:00
• Dec FHFA House Price Index MoM, exp 0,50%, last 0,50% USD / 14:00
• Feb 19 Bloomberg Consumer Comfort, last 48,1 USD / 14:45
• Feb Kansas City Fed Manf. Activity, exp 9, last 9 USD / 16:00
• Feb 17 DOE U.S. Crude Oil Inventories, exp 3250k, last 9527k USD / 16:00
• Feb 17 DOE Cushing OK Crude Inventory, exp -50k, last -702k USD / 16:00
• Jan Central Govt Budget Balance, exp 7.9b, last -60.1b BRL / 17:30
• Fed’s Kaplan Speaks in Fort Worth USD / 18:00
• Feb Consumer Confidence, last 93,3 KRW / 21:00
• RBA’s Lowe Testifies to Parliament Committee in Sydney AUD / 22:30
• Jan Formal Job Creation Total, exp -35149, last -462366 BRL / 23:00

The Risk Today:

EUR/USD is back below 1.0600. Hourly resistance is given at 1.0679 (16/02/2017 high) while hourly support can be found at 1.0521 (15/02/2017 low). The technical structure suggests that the current underlying move is a bearish consolidation. 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 has exited symmetrical triangle. However, the pair is still lying below strong resistance given at 1.2771 (05/10/2016 high). Key support is given at 1.2254 (19/01/2016 low) while hourly support is given around 1.2400. 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 demand is fading after its increase from support given at 111.36 (28/11/2016 low). Bearish pressures arise around hourly resistance given at 115.62 (19/01/2016 high). The technical structure suggests further weakness around former resistance given at 112.57 (17/01/2017 low). 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 short-term bullish momentum is definitely bullish. The pair lies within an uptrend channel. Hourly resistance is implied by upper bound of the uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). We believe that the pair is likely to strengthen again above parity. 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.