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FOREX: Euro May Rise on SNB Rate Decision But Outlook Still Bearish

FOREX: Euro May Rise on SNB Rate Decision But Outlook Still Bearish

2011-09-15 06:17:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • SNB May Announce Further Measures to Force Swiss Franc Lower
  • Euro to See Long-Term Downward Pressure from SNB Intervention
  • Spain, France Bond Auctions to Keep EU Debt Crisis Fears Alive

The monetary policy announcement from the Swiss National Bank is in the spotlight, with traders reasonably jittery ahead of the release after Chairman Philip Hildebrand and company set off unprecedented Swiss Franc volatility earlier in the month by setting a hard floor for EURCHF. It seems reasonable to suspect that the central bank will be reasonably in maintaining the policy considering it has the government’s blessing and so has secured access to a bottomless supply of its own currency to be subsequently sold into the markets. However, given the markets’ habit of testing policymakers’ resolve, further measures may be unveiled today to reinforce the bank’s position and ward off speculators. One option making the rounds across the wires is the imposition of negative interest rates on foreign CHF-denominated deposits.

While an outcome along these lines is likely to boost the Euro in the short term on spillover from the EURCHF response to additional SNB efforts, the longer-term impact of the floor and any subsequent measures is likely to be a drag on the single currency against all of its major counterparts with the exception of the Franc. Indeed, since the SNB is focused specifically on EURCHF and probably will not want to dramatically accumulate large amounts of the Euro as a by-product of intervention, it is likely to become a major seller of EUR-based pairs in the months ahead. Furthermore, the absence of EURCHF as a safe-haven vehicle amid Euro Zone debt stress is likely to encourage investors to find other venues to sell the common currency, most probably putting the emphasis on EURUSD and EURJPY.

Elsewhere on the docket, final Euro Zone Consumer Price Index figures are expected to confirm flash estimates putting the annual inflation rate at 2.5 percent in August, matching the five-month low set in the previous month and reinforcing a neutral outlook on ECB monetary policy. UK Retail Sales are also set to cross the wires, with economist forecasts calling for receipts to shrink 0.2 percent in August from a year before. A downside surprise is not out of the question after an analogous metric from the British Retail Consortium showed sales shrank 0.6 percent over the same period in a report published last week.

France and Spain are also due to sell bonds across 2013-2020 maturities, with disappointing outcomes likely to keep sovereign risk fears alive despite a pledge by German Chancellor Angela Merkel and French President Nicolas Sarkozy to keep Greece within the Euro Zone late yesterday. Indeed, the Greek 5-year CDS rate – a measure of the cost of insuring against the country’s default that rises with growing stress – is trading 13bps higher at a new record high overnight.

Related: RBNZ Holds Rates, Bollard Doesn’t Offset Hawkish Lean

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

Reserve Bank of New Zealand Rate Decision

2.50%

2.50%

2.50%

22:30

NZD

Business NZ PMI (AUG)

52.9

-

53.2

1:00

AUD

Consumer Inflation Expectations (SEP)

2.8%

-

2.7%

1:30

AUD

New Motor Vehicle Sales (MoM) (AUG)

3.3%

-

9.0% (R+)

1:30

AUD

New Motor Vehicle Sales (YoY) (AUG)

4.4%

-

0.9%

1:30

AUD

RBA FX Transactions (A$) (AUG)

364M

-

605M

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:15

CHF

Industrial Production (QoQ) (Q2)

3.0%

-9.2%

Medium

7:15

CHF

Industrial Production (YoY) (Q2)

2.7%

5.0%

Medium

7:30

CHF

Swiss National Bank Rate Decision (SEP 15)

0.0%

0.0%

High

8:00

EUR

ECB Publishes Sept. Monthly Report

-

-

Medium

8:00

EUR

Italian CPI (NIC incl. tobacco) (MoM) (AUG F)

0.3%

0.3%

Low

8:00

EUR

Italian CPI (NIC incl. tobacco) (YoY) (AUG F)

2.8%

2.8%

Low

8:00

EUR

Italian CPI – EU Harmonized (MoM) (AUG F)

0.3%

0.3%

Low

8:00

EUR

Italian CPI – EU Harmonized (YoY) (AUG F)

2.2%

2.2%

Low

8:30

GBP

Retail Sales ex Auto Fuel (MoM) (AUG)

-0.2%

0.2%

Medium

8:30

GBP

Retail Sales ex Auto Fuel (YoY) (AUG)

-0.2%

-0.2%

Medium

8:30

GBP

Retail Sales w/Auto Fuel (MoM) (AUG)

-0.3%

0.2%

Low

8:30

GBP

Retail Sales w/Auto Fuel (YoY) (AUG)

-0.1%

0.0%

Low

8:30

GBP

BoE/GfK Inflation – Next 12 Months (AUG)

-

3.9%

Medium

9:00

EUR

Euro-Zone CPI (MoM) (AUG)

0.2%

-0.6%

Medium

9:00

EUR

Euro-Zone CPI (YoY) (AUG)

2.5%

2.5%

High

9:00

EUR

Euro-Zone CPI - Core (YoY) (AUG)

1.2%

1.2%

Medium

9:00

EUR

Euro-Zone Employment (QoQ) (Q2)

-

0.1%

Low

9:00

EUR

Euro-Zone Employment (YoY) (Q2)

-

0.1%

Low

9:00

EUR

Italian Current Account (€) (JUL)

-

-4252M

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3636

1.3828

GBPUSD

1.5712

1.5820

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

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