Summary of Analysis
The Bank of Switzerland has been very vocal they plan to keep a very accommodating stance and seems like they will be one of the last countries to begin raising rates. This should see EUR/CHF strengthen, however, due exchange rates in EUR/USD it may be a slow grind up. This however, should provide some stability at current prices in EUR/CHF providing a good risk/reward. If weakness continues in EUR/CHF below this price level there is a good chance The Bank of Switzerland would step in.
Meanwhile ECB continues easy policy, however, an economy quickly re-opening and progress on the vaccine front may push ECB to begin to consider pulling back on it's purchases.
This will most likely not be a fast action increase in price, however, seems to have a good floor under it.
News References
he Swiss National Bank (SNB) Chairman Thomas Jordan
The franc remains highly valued.”
“Inflation is only slightly above zero.”
“Productive capacities are not fully utilized in Switzerland.”
"Against this background, it would be completely premature to start reducing the balance sheet and tighten monetary conditions."
"It would be wrong to now signal to the world that the SNB is the first central bank considering a restrictive policy."
“The size of the balance sheet is not a problem.”
"We can even expand the balance sheet further if that is necessary."
https://www.fxstreet.com/news/snbs-jordan-the-swiss-franc-remains-highly-valued-202105220741
"high-stakes war of attrition between Brussels and Switzerland -- not unlike Britain’s acrimonious Brexit battle with the 27-country bloc -- that is putting a 250 billion Swiss franc ($278 billion) goods-trading relationship at risk."
“The proposals were considered insufficient by Switzerland, and for this reason the positions remain quite far away from each other,” Andre Simonazzi, a spokesman for the government, said on May 12.
https://www.bloomberg.com/news/articles/2021-05-25/a-278-billion-brexit-like-showdown-with-eu-looms-over-the-swiss?srnd=economics-vp&sref=2szvH7mo
“The bounceback in Swiss manufacturing is continuing at such speed that there are widespread signs of scarcity,” the Credit Suisse and procure.ch said. While still below the manufacturing-sector index, the rally in services also “picked up speed.”
https://www.bloomberg.com/news/articles/2021-06-01/swiss-economy-slumped-at-start-of-year-as-virus-hit-consumption?srnd=economics-vp&sref=2szvH7mo
“The labor market has showed first signs of a broad improvement in May,” labor agency chief Detlef Scheele said in a statement. “The fallout of the coronavirus crisis remains clearly visible but is getting somewhat smaller.”
https://www.bloomberg.com/news/articles/2021-06-01/german-unemployment-falls-as-economy-starts-to-shrug-off-virus?srnd=economics-vp&sref=2szvH7mo
When the ECB meets again next week the economic outlook will have brightened further, inflation will continue to surge, and it will be hard to once again avoid any taper talk. The Thursday meeting could be packed with insightful information but probably not with tangible action.
https://think.ing.com/articles/ecb-preview-avoiding-taper-talk/
"We tend to still favour higher interest rates"
https://think.ing.com/articles/rates-spark-an-unstoppable-force-meets-an-unmovable-object/
n November, European Central Bank President Christine Lagarde openly warned of the risk of persistent labor-market impairment, and she said on Thursday that “we are still concerned.” However, her chief economist, Philip Lane, said last month that there are reasons to be optimistic that scarring won’t be as bad as it was in the aftermath of 2008.
“We are going to be starting this recovery with a much lower level of unemployment that we usually have after a recession,” said Neville Hill, economist at Credit Suisse. “The amount of scarring that would impair a recovery is not really there.”
https://www.bloomberg.com/news/articles/2021-06-13/worst-fears-of-enduring-pain-for-euro-area-workers-are-subsiding?sref=2szvH7mo
Bank Analysis
You would probably say that the huge amounts of EUR liquidity are a key factor depressing EUR/CHF right now. THE ECB’s balance sheet has grown EUR700bn this year. The Swiss National Bank’s balance sheet just CHF10bn – with no signs of the aggressive FX intervention we saw from the SNB last summer. We would expect that to resume, however, should EUR/CHF make it anywhere near the 1.0750/1.0800 area.
On the subject of FX intervention, the SNB holds its quarterly monetary policy meeting on Thursday. Despite slightly disappointing 1Q21 GDP data, expect the SNB to remain reasonably upbeat on growth this year – e.g. in the 2.5% range. Also expect the SNB to maintain its description of the CHF as highly valued and its commitment to keep rates at -0.75% and continue FX intervention if necessary. Any change here would be a big surprise.
https://think.ing.com/articles/g10-fx-week-ahead-110621-setting-the-summer-vibe/
EUR
After a challenging start to the year, recent trends have turned more encouraging for the Eurozone economy.
Eurozone Q1 GDP fell 0.6% quarter-over-quarter, a second-straight quarterly decline. For the region's major economies, German GDP fell 1.7% quarter-over-quarter, Spain's GDP fell 0.5% and Italy's GDP fell 0.4%. French GDP however, managed a 0.4% gain.
By late Q1, there were hints of stabilization as Eurozone March retail sales rose 2.7% month-over-month and industrial output edged up 0.1%. That said, concerns have persisted that COVID could hold back the recovery, given restrictions were still in place in some countries in April and to some extent in May, including France and Germany, and also given an initially slow rollout of COVID vaccinations across the region.
However, the pace of vaccinations has since improved and, while still lagging on a cumulative basis, the current pace of vaccinations across the Eurozone is more comparable to that in the United States and the United Kingdom.
These more favorable developments are boosting economic confidence and point to stronger growth ahead. The Eurozone May manufacturing PMI eased to 62.8, a level still consistent with a solid rebound in activity. More significantly, the May services PMI rose to 55.1, consistent with renewed growth in the service sector and the highest reading since 2018.
Given these encouraging trends, we have revised our growth outlook for the Eurozone higher. We expect GDP growth of 3.9% for full-year 2021 and 4.2% for full-year 2022.
We expect a restrained euro in the near term and modest gains over the medium term. However, there is some upside risk to our base case forecast.
CHF
Swiss Economic Outlook Starting to Brighten
After a sluggish start to 2021, recent news has offered a more encouraging outlook for the Swiss economic outlook.
Confidence surveys in particular point to an improving economy. The April KOF leading indicator jumped to 134.0, the highest level since at least 1990. The April manufacturing PMI also rose to 69.5, the highest level since at least 1995.
March real retail sales jumped 22.6% year-over-year, a sturdy result but one that was also flattered by base effects, given the weak March 2020 sales figure. Q2 consumer confidence improved more than expected to -7.1, the best outcome since late 2018.
COVID developments remain on an overall improving path. The government announced plans to ease restrictions further by late May, including the resumption of indoor dining, increased capacity limits at theaters, and potentially allowing for some outdoor gatherings.
Despite an expected contraction in Q1 GDP, we forecast the Swiss economy to growth 3.6% for full-year 2021 and 3.0% for full year 2022.
Inflation Remains Minimal, Monetary Policy Remains Easy
Inflation remains largely absent as the April CPI rose 0.3% year-over-year and the trimmed mean CPI rose just 0.2%.
Swiss National Bank (SNB) policymakers are offering every indication that monetary policy will likely remain accommodative for an extended period. In late April, SNB President Jordan said the negative interest rate policy and pledge to intervene in foreign exchange markets were essential. He added that he could not say when interest rates might rise.
Despite the FX intervention pledge, the central bank might have been less active in April as foreign exchange reserves fell 16.2 billion francs last month, the first monthly decline since October 2020.
Our outlook is for gradual weakness in the franc versus the euro over the medium term and relative stability versus the U.S. dollar. However, there are upside risks to this scenario.
https://wellsfargo.bluematrix.com/docs/html/0c8d544b-10c6-453f-b853-0ac7fa852020.html
SNB continues to maintain that it “remains ready to intervene due to a highly valued franc.” Medium term, as EMU vaccinations gather pace, headway would also limit defensive demand for CHF. CHF may lag on non-USD crosses such as EUR and risk currencies (Commodity Bloc, GBP and Asia EMFX). Still continue to point to upside risks in USDCHF post the US May jobs report, noting that the unit has failed to extend its decline below a good support range at 0.8919-27 so far. The team still expects gains could extend at least towards a decent resistance range at 0.9074-94 or even higher towards the formation target at 0.9130.
https://www.citibank.com.hk/
Bank Forecasts
ING 0-3 Months Target of 1.12; 3-6 Months Target of 1.15
Wells Fargo 0-3 Months Target of 1.05; 3-6 Month Target of 1.11
Citibank 0-3 Month Target of 1.13; 3-6 Month Target of 1.16
Targets
For this trade I am looking for the price of 1.12 in a 0 - 6 Month timeframe
Possible Entries
Looking for entry around 0.88 & 0.70 levels.
The Bank of Switzerland has been very vocal they plan to keep a very accommodating stance and seems like they will be one of the last countries to begin raising rates. This should see EUR/CHF strengthen, however, due exchange rates in EUR/USD it may be a slow grind up. This however, should provide some stability at current prices in EUR/CHF providing a good risk/reward. If weakness continues in EUR/CHF below this price level there is a good chance The Bank of Switzerland would step in.
Meanwhile ECB continues easy policy, however, an economy quickly re-opening and progress on the vaccine front may push ECB to begin to consider pulling back on it's purchases.
This will most likely not be a fast action increase in price, however, seems to have a good floor under it.
News References
he Swiss National Bank (SNB) Chairman Thomas Jordan
The franc remains highly valued.”
“Inflation is only slightly above zero.”
“Productive capacities are not fully utilized in Switzerland.”
"Against this background, it would be completely premature to start reducing the balance sheet and tighten monetary conditions."
"It would be wrong to now signal to the world that the SNB is the first central bank considering a restrictive policy."
“The size of the balance sheet is not a problem.”
"We can even expand the balance sheet further if that is necessary."
https://www.fxstreet.com/news/snbs-jordan-the-swiss-franc-remains-highly-valued-202105220741
"high-stakes war of attrition between Brussels and Switzerland -- not unlike Britain’s acrimonious Brexit battle with the 27-country bloc -- that is putting a 250 billion Swiss franc ($278 billion) goods-trading relationship at risk."
“The proposals were considered insufficient by Switzerland, and for this reason the positions remain quite far away from each other,” Andre Simonazzi, a spokesman for the government, said on May 12.
https://www.bloomberg.com/news/articles/2021-05-25/a-278-billion-brexit-like-showdown-with-eu-looms-over-the-swiss?srnd=economics-vp&sref=2szvH7mo
“The bounceback in Swiss manufacturing is continuing at such speed that there are widespread signs of scarcity,” the Credit Suisse and procure.ch said. While still below the manufacturing-sector index, the rally in services also “picked up speed.”
https://www.bloomberg.com/news/articles/2021-06-01/swiss-economy-slumped-at-start-of-year-as-virus-hit-consumption?srnd=economics-vp&sref=2szvH7mo
“The labor market has showed first signs of a broad improvement in May,” labor agency chief Detlef Scheele said in a statement. “The fallout of the coronavirus crisis remains clearly visible but is getting somewhat smaller.”
https://www.bloomberg.com/news/articles/2021-06-01/german-unemployment-falls-as-economy-starts-to-shrug-off-virus?srnd=economics-vp&sref=2szvH7mo
When the ECB meets again next week the economic outlook will have brightened further, inflation will continue to surge, and it will be hard to once again avoid any taper talk. The Thursday meeting could be packed with insightful information but probably not with tangible action.
https://think.ing.com/articles/ecb-preview-avoiding-taper-talk/
"We tend to still favour higher interest rates"
https://think.ing.com/articles/rates-spark-an-unstoppable-force-meets-an-unmovable-object/
n November, European Central Bank President Christine Lagarde openly warned of the risk of persistent labor-market impairment, and she said on Thursday that “we are still concerned.” However, her chief economist, Philip Lane, said last month that there are reasons to be optimistic that scarring won’t be as bad as it was in the aftermath of 2008.
“We are going to be starting this recovery with a much lower level of unemployment that we usually have after a recession,” said Neville Hill, economist at Credit Suisse. “The amount of scarring that would impair a recovery is not really there.”
https://www.bloomberg.com/news/articles/2021-06-13/worst-fears-of-enduring-pain-for-euro-area-workers-are-subsiding?sref=2szvH7mo
Bank Analysis
You would probably say that the huge amounts of EUR liquidity are a key factor depressing EUR/CHF right now. THE ECB’s balance sheet has grown EUR700bn this year. The Swiss National Bank’s balance sheet just CHF10bn – with no signs of the aggressive FX intervention we saw from the SNB last summer. We would expect that to resume, however, should EUR/CHF make it anywhere near the 1.0750/1.0800 area.
On the subject of FX intervention, the SNB holds its quarterly monetary policy meeting on Thursday. Despite slightly disappointing 1Q21 GDP data, expect the SNB to remain reasonably upbeat on growth this year – e.g. in the 2.5% range. Also expect the SNB to maintain its description of the CHF as highly valued and its commitment to keep rates at -0.75% and continue FX intervention if necessary. Any change here would be a big surprise.
https://think.ing.com/articles/g10-fx-week-ahead-110621-setting-the-summer-vibe/
EUR
After a challenging start to the year, recent trends have turned more encouraging for the Eurozone economy.
Eurozone Q1 GDP fell 0.6% quarter-over-quarter, a second-straight quarterly decline. For the region's major economies, German GDP fell 1.7% quarter-over-quarter, Spain's GDP fell 0.5% and Italy's GDP fell 0.4%. French GDP however, managed a 0.4% gain.
By late Q1, there were hints of stabilization as Eurozone March retail sales rose 2.7% month-over-month and industrial output edged up 0.1%. That said, concerns have persisted that COVID could hold back the recovery, given restrictions were still in place in some countries in April and to some extent in May, including France and Germany, and also given an initially slow rollout of COVID vaccinations across the region.
However, the pace of vaccinations has since improved and, while still lagging on a cumulative basis, the current pace of vaccinations across the Eurozone is more comparable to that in the United States and the United Kingdom.
These more favorable developments are boosting economic confidence and point to stronger growth ahead. The Eurozone May manufacturing PMI eased to 62.8, a level still consistent with a solid rebound in activity. More significantly, the May services PMI rose to 55.1, consistent with renewed growth in the service sector and the highest reading since 2018.
Given these encouraging trends, we have revised our growth outlook for the Eurozone higher. We expect GDP growth of 3.9% for full-year 2021 and 4.2% for full-year 2022.
We expect a restrained euro in the near term and modest gains over the medium term. However, there is some upside risk to our base case forecast.
CHF
Swiss Economic Outlook Starting to Brighten
After a sluggish start to 2021, recent news has offered a more encouraging outlook for the Swiss economic outlook.
Confidence surveys in particular point to an improving economy. The April KOF leading indicator jumped to 134.0, the highest level since at least 1990. The April manufacturing PMI also rose to 69.5, the highest level since at least 1995.
March real retail sales jumped 22.6% year-over-year, a sturdy result but one that was also flattered by base effects, given the weak March 2020 sales figure. Q2 consumer confidence improved more than expected to -7.1, the best outcome since late 2018.
COVID developments remain on an overall improving path. The government announced plans to ease restrictions further by late May, including the resumption of indoor dining, increased capacity limits at theaters, and potentially allowing for some outdoor gatherings.
Despite an expected contraction in Q1 GDP, we forecast the Swiss economy to growth 3.6% for full-year 2021 and 3.0% for full year 2022.
Inflation Remains Minimal, Monetary Policy Remains Easy
Inflation remains largely absent as the April CPI rose 0.3% year-over-year and the trimmed mean CPI rose just 0.2%.
Swiss National Bank (SNB) policymakers are offering every indication that monetary policy will likely remain accommodative for an extended period. In late April, SNB President Jordan said the negative interest rate policy and pledge to intervene in foreign exchange markets were essential. He added that he could not say when interest rates might rise.
Despite the FX intervention pledge, the central bank might have been less active in April as foreign exchange reserves fell 16.2 billion francs last month, the first monthly decline since October 2020.
Our outlook is for gradual weakness in the franc versus the euro over the medium term and relative stability versus the U.S. dollar. However, there are upside risks to this scenario.
https://wellsfargo.bluematrix.com/docs/html/0c8d544b-10c6-453f-b853-0ac7fa852020.html
SNB continues to maintain that it “remains ready to intervene due to a highly valued franc.” Medium term, as EMU vaccinations gather pace, headway would also limit defensive demand for CHF. CHF may lag on non-USD crosses such as EUR and risk currencies (Commodity Bloc, GBP and Asia EMFX). Still continue to point to upside risks in USDCHF post the US May jobs report, noting that the unit has failed to extend its decline below a good support range at 0.8919-27 so far. The team still expects gains could extend at least towards a decent resistance range at 0.9074-94 or even higher towards the formation target at 0.9130.
https://www.citibank.com.hk/
Bank Forecasts
ING 0-3 Months Target of 1.12; 3-6 Months Target of 1.15
Wells Fargo 0-3 Months Target of 1.05; 3-6 Month Target of 1.11
Citibank 0-3 Month Target of 1.13; 3-6 Month Target of 1.16
Targets
For this trade I am looking for the price of 1.12 in a 0 - 6 Month timeframe
Possible Entries
Looking for entry around 0.88 & 0.70 levels.
wellsfargo.bluematri...53-0ac7fa852020.html