Euro to climb vs USD until 7 September, then fall
By Yann Quelenn
The single currency will certainly head higher until 7 September, when the Governing Council of the European Central Bank meets to discuss monetary. Yet we believe markets will be disappointed with its outcome, and then send the Euro into retreat.
Disappointment will step from two factors. One, the ECB’s inflation target is far from reached, which will put a brake on interest hikes. Two, a scarcity of bonds is putting a brake on the ECB’s policy of quantitative easing (i.e. buying fixed amounts of bonds on a regular basis).
Current Euro bullishness comes in response to ECB President Mario Draghi’s comments last week at the central-banker’s fest in Jackson Hole, Wyoming. The Euro climbed to 1.1950 USD, its highest since January 2015. Draghi said he is confident about that a global recovery is underway and strengthening.
Euro rally vs CHF is running out of steam
By Arnaud Masset
After a year-to-date rise of 8.5% on a trade-weighted basis, the Euro is losing momentum in its rally against the Swiss franc. The pair has been trading between 1.1259 and 1.1538 for the past four weeks, and has been unable to consolidate above 1.15 CHF per Euro.
The tide is slowing turning in favour of the CHF, as European Central Bank President Mario Draghi keeps investors in the dark. Fears have resurged that Draghi under-deliver on his promises to boost the Euro. Bank balances in Switzerland have remained quite stable through the summer, which allowed the Swiss National Bank to spend a quiet summer. Now, summer is coming to an end.
EUR/CHF eased to 1.1374 on Monday morning, down 0.20% from 1.1407 at the opening. On the downside, a support lies at 1.1259 (low from August 18th), while on the upside a resistance can be found at 1.1538 (high from August 4th). We expect investors to return to the franc’s safe haven ahead of the 7 September ECB meeting.