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How Will SNB, BOE Respond to ECB Stimulus Boost?

How Will SNB, BOE Respond to ECB Stimulus Boost?

Ilya Spivak,

Talking Points:

Policy announcements from the Swiss National Bank and the Bank of England are in focus in European trading hours. Both are expected to keep the current setting of monetary policy unchanged, putting the spotlight on accompanying forward-looking commentary.

For the SNB, traders will want to know if the central bank intends to beef up stimulus to counter downside pressure on EURCHF following the latest expansion in ECB accommodation, which complicates policymakers’ deflation-fighting efforts. Needless to say, a dovish lean is likely to bode ill for the Swiss Franc, while a status-quo approach may offer the currency a lift.

For the BOE, imported disinflation courtesy of the ECB is likewise in the spotlight. On-coming Euro weakness is likely to weigh on the price of imports from the Eurozone, the UK’s top trading partner, undermining the struggle to bring the pace of price growth high enough to begin raising rates.

Comments suggesting the velocity of UK growth will be able to counter these headwinds are likely to keep tightening bets alive, boosting the British Pound. A softer tone and perhaps the abandonment of a rate hike vote from the MPC committee’s heretofore lone hawk, Ian McCafferty, would imply a longer path toward normalization. Sterling is likely to come under pressure in this scenario.

The Australian Dollar soared in overnight trade after November’s Employment report showed the economy unexpectedly added a net 71.4k jobs last month. Economists were betting on a 10k decline ahead of the release. The jobless rate fell to 5.8 percent, marking the lowest level since April 2014.

The Aussie’s advance tracked a surge in front-end bond yields, suggesting the upbeat outcome weighed against RBA rate hike speculation. Indeed, the probability of another 25bps reduction in the cash rate over the coming 12 months has dropped to 36 percent from 76 percent yesterday.

The New Zealand Dollar likewise pushed higher even as the RBNZ issued a rate cut. The move was broadly expected, shifting investors’ focus to comments from Governor Graeme Wheeler for direction cues. For his part, the central bank expects to achieve on-target inflation with the cash rate at the current level, pushing the priced-in probability of further easing from 66 to 32 percent and sending the Kiwi upward.

Gauge Trends and Spot Reversals in the Major Currencies with DailyFX SSI

Asia Session

20:00NZDRBNZ Official Cash Rate2.50%2.50%2.75%
21:45NZDCard Spending Retail (MoM) (NOV)0.3%0.4%0.0%
21:45NZDCard Spending Total (MoM) (NOV)0.2%-0.0%
23:50JPYBSI Large All Industry (QoQ) (4Q)4.6-9.6
23:50JPYBSI Large Manufacturing (QoQ) (4Q)3.8-11.0
23:50JPYPPI (MoM) (NOV)-0.1%-0.3%-0.6%
23:50JPYPPI (YoY) (NOV)-3.6%-3.8%-3.8%
00:00AUDConsumer Inflation Expectation (DEC)4.0%-3.5%
00:01GBPRICS House Price Balance (NOV)49.0%48.0%50.0%
00:30AUDEmployment Change (NOV)71.4k-10.0k56.1k
00:30AUDUnemployment Rate (NOV)5.8%6.0%5.9%
00:30AUDFull Time Employment Change (NOV)41.6k-38.4k
00:30AUDPart Time Employment Change (NOV)29.7k-17.7k
00:30AUDParticipation Rate (NOV)65.3%65.0%65.0%
01:28NZDREINZ House Sales (YoY) (NOV)8.5%-18.6%
02:00JPYTokyo Avg Office Vacancies (NOV)4.19-4.46

European Session

08:30CHFSNB 3M Libor Lower Target Range-1.25%-1.25%High
08:30CHFSNB 3M Libor Upper Target Range -0.25%-0.25%High
08:30CHFSNB Sight Deposit Interest Rate-0.75%-0.75%High
09:00EURECB's Liikanen Speaks at BOF Briefing --Medium
09:30GBPTrade Balance (£) (OCT)-1800M-1353MLow
09:30GBPVisible Trade Balance (£) (OCT)-9700M-9351MLow
09:30GBPTrade Balance Non EU (£) (OCT) -2500M-2076MLow
11:30EURECB's Coeure Speaks in Brussels --Medium
12:00GBPBOE Asset Purchase Target (£)375B375BHigh
12:00GBPBank of England Bank Rate0.50%0.50%High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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