Forex Afternoon Wrap for January 15th

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Forex Afternoon

Key Forex Afternoon Notes:

  • Australia employment change +37.4k vs. 5k consensus; unemployment rate 6.1% vs. 6.3%
  • Germany annual GDP growth rate 1.5% as expected
  • US weekly initial jobless claims 316k vs. 290k
  • Empire state manufacturing 9.95 vs. 5
  • US PPI Core m/m 0.3% vs. 0.1%; PPI m/m -0.3% vs. -0.4%

The markets were shocked today by the SNB’s unexpected announcement that it was no longer going to defend the EURCHF peg at 1.2 floor. The SNB also cut its sight deposit rates further to -0.75%, a second consecutive cut from -0.25% in December. The move saw an immediate rally in the Swiss Franc across the board. In the midst of the confusion, Aussie, Kiwi and Gold futures were seen rising while the Euro and the US Dollar remained subdued.

The Japanese Yen continues to be the only stable currency supported by flows due to the uncertainties this week.

The Asian session started on a quiet note with upbeat employment results from Australia which managed to beat estimates both in terms of the employment change, as well as the unemployment rate. The Aussie dollar was bullish against the Greenback since last week and continued to modestly push higher in today’s session.

Germany posted its annual GDP growth rate at 1.5%, in line with expectations. But the news was overshadowed by the SNB’s announcement. The Euro briefly dipped to lows of 1.15 before easing from these levels.

The British Pound was also relatively boosted by the news from Switzerland as the Cable was seen trading higher during the European trading session. However, the British Pound simply could not compete with a very strong Swiss Franc.

Gold futures which did not react as wildly as the currency markets however picked up steam, briefly rallying to as high as $1250 handle, which puts the consensus mixed as the precious metal is likely to swing to either side from the monthly highs.

Oil futures were also lifted today and continue to trade higher after hitting news lows of 44.73 earlier this week. OPEC has cut down its oil supply forecast for 2015 by 100k barrels per day citing declines in shale output on account of the sharp declines.

SNB Chief, Jordan held a press conference at 1215GMT. The main talking points were:

  • SNB would remain active in the forex markets if required, but declined to comment if the Central bank was active at the moment
  • Falling oil prices will continue to dampen inflation expectations. Low inflation outlook for Switzerland
  • Reiterates SNB’s commitment to ensuring price stability
  • Says the decision to remove its peg was a well thought out decision and not driven by panic

While the markets saw a kneejerk sell off to the news initially have started to stabilize but the broader theme of uncertainty continues to weigh in on the markets, ahead of the US trading session. The German DAX managed to rise from today’s lows of 9581 and was seen trading back to the intraday highs near 9925.

The US trading session started with the release of the weekly jobless claims which continued to rise for the second week in a row to 316k, above consensus estimates. Meanwhile, PPI and Empire state manufacturing index managed to beat estimates all of which was dollar positive.

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