Swiss exports hit all-time high, Japan's yields on the rise

Swiss exports rose to record level despite EUR/CHF’s strength (by Arnaud Masset)

The Federal Customs Administration has released its preliminary annual report on Swiss exports. The document shows that in 2016, Swiss exports expanded 3.8% in nominal terms (-0.8% in real terms) to a record level of CHF 210.7 billion after contracting 2.6% in the previous year (-0.9% in real term).

However, the split amongst various industries was more than unequal as growth was mainly due to the sharp increase in chemical & pharmaceutical products (+11.4%) and a jump in textiles, clothes & footwear products (+10%). On the other hand, the nightmare continues for the watch industry as exports decreased for the second consecutive year, down 9.9% or CHF 2.1bn.

Imports also increased last year, rising 4.1% (1.2% in real term) to CHF 173.2bn.

Geographically, exports to the USA showed the largest increase (+13%) and set a new record of CHF4bn. In addition, exports to the European Union climbed another 4% as Germany boosted its imports of Swiss products (+CHF 3bn). Switzerland’s foreign trade ended the year on a positive note as exports rose 9.9%m/m (versus a downwardly revised figure of -4.0%m/m in November), while imports contracted -0.8%m/m (versus -4.5% previous reading). All in all, the trade balance edged down to CHF 2.72bn from CHF 3.50bn in November. As usual, watch exports shrank in the last month of year, down 4.6%y/y as exports to Hong Kong - the largest watch-importing country - fell 15.7%y/y. On the bright side, exports to the USA and China rose sharply, rising 10.9% and 27.6% respectively.

Moving forward, we expect the Swiss economy to remain under substantial pressure as the eurozone, its main economic partner stares down the barrel of a troubling year ahead, one rife with political uncertainty. In addition, the arrival of Donald Trump at the White House dampens the outlook for Swiss exports especially in the event of more protectionist measures. Chances are Trump’s decisions will impact Switzerland, at least indirectly. The new US President has taken aim several times at the chemical and pharmaceutical industry stating that drug prices are too high.

Japan: Yields increase on inflation hopes (by Yann Quelenn)

Is reflation finally going to hit Japan? The low end of the yield curve is very sensitive to inflation and the 40-year yield has hit 1%. It is the first time that this has happened since last year when it reached record lows in April.

Stepping back and looking at the global picture, Trump’s policies are expected to push upside pressures on economic growth and inflation. This is why we are seeing Japanese yields bouncing even higher thanks to this upbeat environment.

It is easy to see that this yield increase is good news for the Bank of Japan, which had purchased substantial volume of bonds with wide-ranging maturities yielding below zero. In other words, the amount paid was higher than the face value and this had to be recorded as a loss. Now that these yields are rising, this loss is being diminished.

Therefore, the BoJ has won itself some relief by buying bonds with higher yields. Additionally, the yen remains weak and crude oil is not as cheap as it was in 2016, which is all good news for the island nation as inflationary pressures should increase. Yes, despite its massive debt, the BoJ is for now enjoying some respite.

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GBP/USD - Wide-Open Towards Resistance At 1.2771.

EURUSD

EUR/USD's momentum is still largely positive despite some consolidation. Hourly resistance is given by resistance implied by the upper bound of the uptrend channel around 1.0800. Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 low). Expected to see continued increase towards 1.0800. 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's demand has largely increased towards 1.2771 fading around 1.2550. The technical structure is still anyway showing positive potential. Hourly support is given at 1.2254 (19/01/2016 low). Expected to show further bullish move. 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 is bouncing on and off within downtrend channel after monitoring resistance implied by the upper bound of the downtrend channel. The road remains wide-open towards hourly support given at 111.36 (28/11/2016 low). Hourly resistance is given at 115.62 (19/01/2016 high), Expected to see further downside 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).

USDCHF

USD/CHF's momentum is clearly bearish. The pair has broken parity. Key resistance is given at a distance at 1.0344 (15/12/2016 high). The road is wide-open for further decline. 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