Markets Expect Strong US Retail Sales

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Markets expect strong US retail sales (by Yann Quelenn)

Equity markets have dropped with the S&P 500 reaching 2115, before bouncing back towards 2132. Markets are certainly repricing the fact that the Fed is willing to raise rates by December. The era of cheap money is not over yet.

Uncertainties remain as the Fed now does not seem as data dependent. However, traders and investors will still try to more closely access the likelihood of a rate tightening. Later today, September retail sales will be released and are expected to print higher than August at 0.6% m/m vs -0.3% m/m. Since 2009, retail sales reports have tended to surprise markets to the upside. It is clear that US economic data is mixed, the unemployment rate is currently bouncing back and wage growth keeps on declining. From our vantage point, it already seems as though the likelihood of a December rate hike has topped. Markets have experienced too much disappointment from the Fed and will remain cautious. The EUR/USD is at its lowest level in three months and there is definitely some room for further upside caused by soft economic data or mixed Fed member declarations. We maintain our view that the quest for credibility will be the catalyst behind the Fed raising rates but that the state of the US economy is overestimated.

Thai Reaction

Currently Thailand is in shock following the passing of King Bhumibol Adulyadej, the world’s longest-reigning and most beloved monarch. Thais are now waiting to hear how the period of mourning will be organized. Most likely, exchanges will be closed tomorrow so traders will have to wait and see the effect his passing will have. We doubt any political party will take advantage of the situation out of respect and reverence to the monarch. Despite international anxiety concerning the transition, presenting a challenge for his only son and named heir, Maha Vajiralongkorn, we anticipate that the event will go smoother than Thailand’s traumatic decade would suggest. The government, led by the military since the coup d’état of May 22, 2014, will likely maintain strong domestic control. Should outflows become destabilizing, we anticipate that the BoT will step in to maintain order. Mr Veerathai has stated in the past that the BoT stands ready to use tools if the BoT finds FX movement to be incompatible with Thailand’s financial stability or indeed the country’s economic recovery. Capital flows are likely to marginally slow until the transition strategy has been clarified. We anticipate some degree of weakness in THB, however nothing drastic as Thailand works through this transitional period. Markets are now bracing for a potential sell-off in Thai stocks. However, we suspect the opposite to be the more likely outcome. We anticipate the SET to rally. The passing of the revered monarch is more than the loss of a leader, but rather the father and guardian of a kingdom. International analysts have been focused on the decade of chaos and extrapolate the king’s death as the next trigger of social disorder as political factions again splinter. We expect Thai domestic investors to defend the traditional cut and run by international investors with significant buying. For the Thai’s, supporting the stock market at this historical moment of transitions, is not about financial gains but cultural pride.

Today’s Key Issues

The Risk Today

Peter Rosenstreich

EUR/USD is now consolidating after its recent decline. Yet, support given at 1.0952 (25/07/2016 low) is on target. Key resistance is located far away at 1.1352 (18/08/2016 high). Further decline is favoured. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.

GBP/USD‘s sell-off continues after last week’s flash crash. Resistance stands far away at 1.2620 (declining trendline) then 1.2873 (03/10/2016). Support base is now building from 1.2090 (11/10/2016 low). Expected to show continued downside pressures. 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 is going back higher. The pair lies within a short-term uptrend channel. Hourly support is located at 102.81 (10/10/2016 low) and 100.09 (27/09/2016) while hourly resistance can be found at 104.64 (13/10/2016 higher). 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 is consolidating but remains on a bullish momentum since September 15. Hourly resistance is given at 0.9950 (27/07/2016 high). Hourly support is be located at 0.9733 (05/10/2016 base) then 0.9632 (26/08/2016 base low). Expected to see continued increase. 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

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