EURCHF, EURUSD  – SNB buoys euro

A quarterly assessment of the monetary policy by the SNB turned out to be the key event on the forex yesterday. Just as we indicated in yesterday’s snapshot the bank was likely to change their statement in a significant way and indeed it did. Still it provided an enormous impulse for the market, resulting in a significant depreciation of the frank versus euro and the dollar. The bank warned that a strong frank is harmful for the Swiss economy and lowered inflation forecasts.

As a result, the EURCHF rose from below 1,30 to 1,3315. The pair still remains in a mid-term declining channel and the upper limit may be met around 1,36, which should be a target for the bulls on the pair at the moment.

The lift of the euro on the EURCHF also helped the European currency vs. the dollar, especially as the EURUSD managed to move above a resistance of 1,3030. While Fibo retracements (of the decline in August) at 1,3174 and 1,3249 may encourage profit taking, the pair may eye Augusts’ high of 1,3334.   

US macro – mixed data but stocks rally

The data released yesterday in the US were mixed. On one hand, another decline in initial claims may soothe labor market worries. On the other, weak Philly Fed (after a weak NY Fed on Wednesday) may suggest a period of weakness of the US economy isn’t over yet. In general the data suggest a lackluster recovery in the US which should correspond with a broad consolidation on equity markets in the longer term.

In short-term, however, equity markets are dominated by buyers which was clear during the Asian trade. The Japanese equities rose on the (so far) successful yen intervention, spreading a positive sentiment around a region. An opening on the European markets is strong, with the German DAX30 close to the 2010 highs.

USDJPY – 85,93 plays a key role

The USDJPY remains above 85,00 which itself is a success of the Japanese authorities, even if this success needs to be maintained by continuous interventions on the market. The pair has been stopped by a resistance at 85,93 and it seems to have a deciding role. It happens often on the USDJPY that a support turns into a resistance (and vice versa) and it is the case with the 85,93 which played a role in the past. Should the level be conquered, the pair may inch up to 88,11, another important resistance. Supports remain at 85,21 and 84,35. The longer the pair remains below the resistance, the greater is a chance for the retracement.    

Events to watch – CPI and UM index in the US

Friday’s calendar looks relatively light which should support the euro ahead of the week’s close. While there is a CPI release in the US (8.30 ET, 14.30 CET, consensus +0,2% m/m, +0,1% m/m for the core), the figure shouldn’t have a significant impact on the market, unless there is a drop in core, which would be negative for the dollar and equities. Later on, there is the first reading of Septembers’ UM index (9.55 ET, 15.55 CET, consensus 69,9 pts.).

Przemysław Kwiecień, Chief Economist

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