EUR/CHF climbs back towards 1.20By Arnaud Masset
After dropping to 1.1368 at the beginning of the summer, EUR/CHF has climbed back to 1.1696. Still, the currency pair is well below the multi-year high reached at the beginning of the second quarter, when it passed 1.20 before nomination of the new Italian government, mounting trade war fears and an unexpectedly dovish ECB. Recovery in EUR/CHF is exclusively due to improved risk sentiment rather than a strengthening of the single currency. The Swiss National Bank has not changed strategy. Total sight deposits have been stable since mid-2017, suggesting the SNB did not intervene in FX markets. EUR/CHF is well outside the danger zone.
The SNB will maintain its wait-and-see approach and will let the European Central Bank be the first mover. The market expects ECB President Mario Draghi to start raising rates in mid-2019. The recovery in EUR/CHF should continue. However, trade tensions between the US and its main trading partners remain a major concern for investors. A quick deterioration could ignite a CHF appreciation. We maintain our objective of 1.20 for the end of the summer.
Chinese growth slowing, currency stumblesBy Vincent-Frédéric Mivelaz
Chinese Q2 GDP rose 6.7% year-on-year, in line with market expectations. Seasonally adjusted quarter-on-quarter growth remains comfortable at 1.80%. However, the economy is showing some weakness: June fixed asset investment (6%; prior: 6.10%), industrial production (6%; prior: 6.80%) and retail sales (9%; prior: 8.50% but below 2-year average of 10.20%). Money supply is tightening, due to caution of financiers and debt risk, so the Chinese economy is expected to slow down industrial activity and private consumption. Trade tariffs will be a key factor in coming months. Further CNY weakness is expected: now at 6.6845, USD/CNY is approaching the 6.675 in the short-term.