Don’t Forget to Keep an Eye on EURCHF

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EURUSD has rallied in the first part of this week. It hit a weekly high at 1.2494. On Monday, Tuesday and Wednesday, the Euro was bought by investors without a strong fundamental reason. The economic releases this week for the European Union are equilibrated. We had some good news from Germany, like better industrial production and trade balance, but Wednesday all of these were faded by the French economic indicators.

The most important release of this week was expected yesterday. The targeted LTRO was released by the European Central Bank at 129.8B, almost 20B less than it was expected by the market. Expectations of this release drove the Euro towards 1.24 and lower.

On the other hand, The United States had better than expected values for the economic indicators. The highlights of this week were: Economic Optimism rose to 48.4, Federal Budget dropped with only -56.8B (less than it was expected), Core Retail Sales are up 0.5%, while Retail Sales are up 0.7%, and Unemployment Claims for this week have shown a drop of 3000 claims.

Despite all of these good news the Dollar is still down 1.18% against the Euro. The risk appetite was higher for the investors, but it could soon end. The economic reality does not sustain the European single currency.

A very interesting currency pair to watch is EURCHF. It has reached 1.2009 and it seems that the pressure is still on the down side. During the last two months the Swiss Central Bank (SNB) has reiterated that it will do everything to defend 1.20 levels. If the Swiss franc will continue to gain we might see a direct intervention from the Bank. They are aware that a drop below 1.20 would activate lots of orders which will push the price much lower. SNB’s Jordan said yesterday that they do not rule out the use of negative interest rates.

Other important events:

  • The ECB’s Court declared that the LTRO was within estimates;
  • Bank of Russia raised interest rates to 10.5%;
  • Fitch is closing in a downgrade for Japan in 2015;
  • China will stick to prudent monetary policy and it cuts 2015 GDP growth target;
  • MPC meeting will be in a number of 8 per year, starting 2016;
  • Edwards, RBA official, declared that employment won’t grow strongly enough in 2015, so the bank will keep the rates;
  • The ECB is worried that the drop in the oil price will affect other inflation components.

Heads up for todays’ releases. United States will publish the PPI and Core PPI at 14:30 GMT and Prelim Consumer Sentiment at 13:55 GMT.

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