FX Weekly Review, August 08 – August 12: Finally an Improvement of the CHF Index

Swiss Franc Currency Index

The CHF index experienced its first good week since many weeks, when we compare it against the dollar index. It is up 1.25%, while the USD index lags with -0.50%.

Swiss Franc Currency Index (3 years)

The Swiss Franc index is the trade-weighted currency performance (see the currency basket)

On a three years interval, the Swiss Franc had a weak performance. The dollar index was far stronger. The dollar makes up 40% of the SNB portfolio and of Swiss exports.

Contrary to popular believe, the CHF index gained only 1.73% in 2015. It lost 9.52% in 2014., when the dollar (and yuan) strongly improved.

EUR/CHF

Over the week, the EUR/CHF fell. We are not so constructive any more because of the big divergence between German GDP growth and the rest of the euro-zone.

A stronger German economy is positive for CHF, because of the tight trade connection between Germany and Switzerland (more here).

FX Rates August 8 to August 12, 2016

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US Dollar

FX Rates August 8 to August 12, 2016

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EUR/USD

USD/JPY

The dollar also posted an outside day against the Japanese yen and the close was similarly uninspiring, toward the middle of the session’s range.

It was turned back as it approached the upper end of its relatively narrow range, (~JPY102.50).  On the downside, initial support is seen in the JPY100.65 area, but  JPY100 is more important, especially psychologically.  Among the technical indicators we look at, the slow stochastics may be warning of limited downside potential for the dollar.

GBP/USD

AUD/USD

The Australian dollar finished the week with two successive losses. 
It has not done so since July 19-20.  The 0.6% loss before the weekend cut the week’s gains by more than half and ensured that the Aussie would be the weakest major currency after sterling with a 0.4% gain.  It has been in a strong uptrend and technicals appear stretched.  The pre-weekend close was the first below the five-day moving-average since July 25.  The $0.7630 area corresponds to the 38.2% retracement of the last leg up that began in late-July.  A break of that would suggest a move into $0.7550-$0.7575 area.

USD/CAD and NOK

The Canadian dollar was the second strongest major currency last week, rising about 1.7% against the greenback.  The Norwegian krone outperformed it; rising 3.6% on the week.  Nokkie was helped by unexpectedly strong inflation figures and the recovery in oil prices.  The rise in oil prices and the recognition that the diverging US-Canadian July employment figures will not elicit a policy response buoyed the Canadian dollar.

A trendline drawn off the early-May low and late-June low comes in near CAD 1.2885 at the start of next week, and is the immediate target.  The US dollar fulfilled the 38.2% retracement of the gains off the early-May that was found near CAD1.2950. The 50% retracement is near CAD1.2860.  The five-day moving average has crossed below the 20-day average, while the technical indicators point to additional greenback losses in the period ahead.

Crude Oil

Comments by a Saudi official suggesting that next month’s IEA meeting could be a forum to discuss output cut helped oil prices recover from the supply-induced losses on August 8-9.

We are skeptical that an output freeze, let alone a cut in output, can be agreed to until Iranian output is closer to what it was before the embargo.  This may take the rest of the year if not a bit longer.

Open interest in the light sweet oil futures for October has surpassed September, so turn our analysis to it.  It posted its largest weekly advance in four months (~6%).  The technical indicators are constructive; more constructive in our opinion than fundamental factors. The MACD and RSI are trending higher, and the five-day average has crossed above the 20-day average for the first time since late-June.

The October futures contract approached the 38.2% retracement
of the decline from the early-June high near $53.  That retracement is found just below $45. The October contract closed above its 200 day moving-average ( $44.55) and stopped shy of its 100-day moving average ($46.50).  A downtrend line off the June and early-July highs also is near  $46.50 at the end of next week, which also corresponds with the 50% retracement objective.  Initial support appears around $43.50.

US Treasuries

US 10-year yields began the week at the upper end of the recent range by 1.60%.  It finished last week below 1.50% after the disappointing retail sales.   A push below 1.45% would be an ominous technical development; warning of the risk of a return toward 1.30%.

The September note futures runs into resistance in the 133-04 area.  A move above here could target 134-00 to 134-07.  Only a break of 131-16 would sour the technical tone.

S&P 500

The S&P 500 traded in narrow ranges last week (~2172-2188).
It managed to reach a new record high (2188.45).  Technical indicators are not particularly helpful presently but appear mostly neutral to constructive.  A break of August’s low (~2147.60) would undermine the technical tone.  Many are looking for a move above 2200.