BoJ on hold, Swiss watch

BoJ stays on hold as expected (by Arnaud Masset)

As expected, the Bank of Japan held its monetary conditions steady as it left the short-term rate unchanged at -0.1%, while maintaining its yield-curve control and asset purchase programmes. Japanese equities were buoyed this morning as the Japanese yen lost ground against almost every single currency pair. The JPY fell 0.86% versus the Aussie, 0.68% against the dollar and 0.60% versus the euro as the bank said it will expand its monetary base until the inflation target is met. The Nikkei was up 0.53%, while the broader Topix Index rose 0.21%. After all, there is no reason why the BoJ should increase easing since Kuroda finally has the weaker currency that he was so eagerly awaiting.

We do not believe that the market is feeling more confident that the BoJ will be able to reach its inflation target within the expected time frame using its monetary policy tools. The recent improvement in the US yield outlook and hawkish comments from Janet Yellen at the University of Baltimore yesterday are keeping investors away from safe haven assets such as the JPY, CHF and gold. USD/JPY resumed its rally and hit 118.24. Upside risk remains, however the currency pair is still in overbought territory, which means that a retracement is still a real possibility.

Swiss watch exports fall…. Again (by Peter Rosenstreich)

Swiss trade surplus grew in November, however the improvement was actually due to imports falling faster than exports. Data released today indicates that Swiss watch exports for November declined further. The Federation of Swiss Watch Industry, FH reported that exports decreased 5.6% to CHF1.86bn. Today's read follows the 16% collapse on October. The largest decline was driven by high-end metal watches, as exports to the US report significant falls. On the bright side, demand from China increased, providing tertiary evidence of stability in growth. But this trend has been well covered as the shift in consumer preference and strong CHF has undermined the Swiss watch industry. Interestingly, the steady depreciation of the CHF against the USD should help support watch sales to the American market. However, against the euro the CHF remains overvalued and damages competitiveness. The SNB's recent monetary policy assessment shifted the wording, in our view, indicating a greater willingness to allow greater currency flexibility. In short, the SNB is less likely to protect CHF from appreciation. Given the IMM overbought positing of USD and oversold positing of CHF we anticipate a short-term correction in USDCHF down to 1.0221.

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AUD/USD - Wide-Open For Further Weakness.

EURUSD

EUR/USD remains below 1.0500. Hourly resistance can be found at 1.0480 (intraday high). Stronger resistance is given at 1.0670 (14/12/2016 high). Hourly support at 1.0367 (15/12/2016 low) is definitely on target. 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.

GBPUSD

GBP/USD is trading below former uptrend channel. Strong support can be found at 1.2302 (18/11/2016 low) while resistance lies at 1.2509 (16/12/2016 high). The technical structure suggests further weakness towards support at 1.2302. 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 bullish pressures are still very strong despite some bearish retracements. The pair is heading towards the 120.00 level. Hourly support can be found at 116.56 (19/12/2016 low). Stronger support lies at 114.74 (12/12/2016 low). The technical structure suggests further strengthening. 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 is heading higher. Hourly resistance is given at 1.0344 (15/12/2016 high). Key support is given at the parity. Expected to further consolidate towards former resistance area around 1.0205. 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