Well, it seems last week has seen some serious developments when it comes to forex, but this does not mean the rest of the world were sitting on their thumbs, either. The biggest forex-related news this week is certainly the announced exodus of London-based companies, most ostentatiously to Berlin – the infamous (br)exodus. Also, some interesting developments from China where some serious illegal trades have been exposed. But first, let us see what major forex pairs have been up to as of late.
The Week Behind Us
As far as the EUR/USD pair goes, the high point was 1.1038 but sadly it did not last. The low of 1.0934 soon followed, just before Wall Street opened. If you are looking for a culprit for this activity, look no further than ECB, and Mario Draghi in particular. QE was not extended, and even tapering was not a major topic for discussion. It is evident that the powers are patiently waiting for December and the opportunity to look at the situation under slightly different circumstances, hopefully.
The future prospects look bearish on the whole, especially if we take a look at the 200 SMA. Most of the technical indicators point in roughly the same, negative direction. Apart from the occasional show of force, the pair seems unable to stabilize above the 1.0950. We can expect the immediate support level to be around 1.0910 and there should be no resistance until the pair reaches 1.0950. Keep in mind that a fall to 1.0800 is a lot more likely than an upward spike.
The GBP/USD pair has not been doing too well either. This is expected given the low retail sales numbers in the UK. In case you did not notice, these were completely flat. 0.0%, or 4.1% if you look at year-on-year numbers. While not exactly a poor performance in itself, the expectations had already been lowered to 4.8%. They were 6.6 but then the Brexit happened and we all know the rest. In any case, since even these lower expectations did not meet the harsh reality, the EUR/GBP went past the 0.9000 and this also reflected on the GBP/USD pair. Hence this drop to 1.2209. Of course, there are other factors which contributed to this as well, but more importantly, technical indicators show a slightly bearish outlook for the next couple of days.
USD/JPY: Unlike the previous two, this pair is actually looking to get out of its neutral phase it was stuck in for the last few days and actually go bullish. It all depends on whether it manages to stay above the 104.00. If we look at US employment data, and combine it with the latest release from the ECB, it still may not be enough to get us there. The figures for US employment were off by roughly 10K, but then the manufacturing survey from Philadelphia’s FED branch did better than expected so the effects counteracted each other in a way. If we see a recovery that goes above the 104.20 line, we can expect it to keep rising until further notice.
Forex Forecast for Major Pairs
EUR/USD: Bearish, with support expected to kick in at 1.0910, 1.0870 and 1.0840. Resistance levels are believed to be around 1.0950, 1.1000 and 1.1035.
GBP/USD: Bearish, at least in the short run. Support should become apparent at 1.2210, 1.2170 and 1.2125 while resistance will rear its head when and if the pair reaches 1.2260, 1.2300 and 1.2340.
USD/JPY: Neutral, or Bullish if the 104.20 line is crossed for good. Support can be expected at 103.40, 103.00 and 102.60, while resistance levels should be at 103.85, 104.20 and 104.60.
Brexodus to Berlin, Pros and Cons
Ever since Brexit became a reality, there has been some serious campaigning to get as many companies to switch their headquarters from London over to mainland Europe. A lot of smaller companies have already uprooted and moved to other European capitals, mostly Berlin. A lot of them seem to have forgotten about the reasons why they’d set up in the UK to begin with. The red tape and overall business climate in Germany is a lot different from what they were used to over in the UK.
Some of you may remember news stories about a truck which drove around London just after the Brexit referendum, calling on businesses to “keep calm and move to Berlin” which seemed like an extremely distasteful joke at first, but many start-ups have actually heeded that advice. And now some of them have come to regret it. And yet, as hard as it seems right now, troubles are nowhere near what a hard Brexit would bring.
Still, there are language barriers and regulations, so any business looking to make this transition had best prepare itself for the tough times ahead.
China Clamps Down on Underground Banks
It is no surprise that banks can be all too eager to engage in questionable deals if the appeal of a quick profit is high enough. However, the recent Chinese inquires into illegal trading have surpassed everyone’s wildest expectations. It seems there was a much as $148 billion in illegal trades, or just over 1 trillion yuan in local currency, according to Financial News.
The worst part is that SAFE (State Administration of Foreign Exchange) have barely even scratched the surface, so there is no way to tell just what else they might uncover as they dig deeper. This crackdown on underground banks is already yielding some serious results, with $8.43 billion in illegal capital outflows alone being discovered since January. Three banks were held to account for failing to comply to regulations and allowing fake trades on foreign currencies to take place.
According to the Xinhua news agency, in Guangdong province alone, several banks have achieved as much as $35 billion in illegal transfers in 2016, which is a huge step in cleaning up the business climate and getting things back in order.
Forex Calendar: The Week Ahead
01:50 JPY Adjusted Merchandise Trade Balance (Yen) (SEP)
09:30 EUR Markit/BME Germany Manufacturing PMI (OCT P)
09:30 EUR Markit Germany Services PMI (OCT P)
09:30 EUR Markit/BME Germany Composite PMI (OCT P)
10:00 EUR Markit Eurozone Composite PMI (OCT P)
10:00 EUR German IFO – Expectations, assessment and business climate (OCT)
16:00 USD Consumer Confidence (OCT)
02:30 AUD Consumer Prices Index (YoY) (3Q)
08:00 EUR German GfK Consumer Confidence Survey (NOV)
10:30 GBP BBA Loans for House Purchase (SEP)
13:00 USD MBA Mortgage Applications (OCT 21)
14:30 USD Advance Goods Trade Balance (SEP)
14:30 USD Wholesale Inventories (SEP P)
15:45 USD Markit US Services PMI (OCT P)
15:45 USD Markit US Composite PMI (OCT P)
16:00 USD New Home Sales (MoM) (SEP)
16:30 USD DOE U.S. Crude Oil Inventories (OCT 21)
01:50 JPY Japan Buying Foreign Bonds (Yen) (OCT 21)
03:30 CNY Industrial Profits (YoY) (SEP)
08:00 CHF UBS Consumption Indicator (SEP)
10:30 GBP Gross Domestic Product (QoQ) (3Q A)
10:30 GBP Gross Domestic Product (YoY) (3Q A)
14:30 USD Durable Goods Orders (SEP P)
14:30 USD Durables Ex Transportation (SEP P)
14:30 USD Initial Jobless Claims (OCT 22)
14:30 USD Continuing Claims (OCT 15)
GBP Nationwide House Prices n.s.a. (YoY) (OCT)
01:30 JPY Household Spending (YoY) (SEP)
01:30 JPY National Consumer Price Index (YoY) (SEP)
01:30 JPY National Consumer Price Index Ex-Fresh Food (YoY) (SEP)
01:30 JPY National Consumer Price Index Ex Food, Energy (YoY) (SEP)
07:00 JPY Natl CPI Ex Fresh Food, Energy (YoY) (SEP)
07:30 EUR French Gross Domestic Product (YoY) (3Q A)
09:00 CHF KOF Leading Indicator (OCT)
14:00 EUR German Consumer Price Index (MoM) (OCT P)
14:00 EUR German Consumer Price Index (YoY) (OCT P)
14:30 USD Employment Cost Index (3Q)
14:30 USD Gross Domestic Product (Annualized) (3Q A)
14:30 USD Personal Consumption (3Q A)
14:30 USD Gross Domestic Product Price Index (3Q A)
14:30 USD Core Personal Consumption Expenditure (QoQ) (3Q A)
16:00 USD U. of Michigan Confidence (OCT F)