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Article / 11 December 2012 at 9:14 GMT

EURCHF perks up again, EURUSD looking for resistance

Head of FX Strategy / Saxo Bank

EURCHF perked up again as UBS joins Credit Suisse in announcing negative rates on franc deposits. The CHF situation comes to a head on Thursday with the SNB meeting. Meanwhile, the FOMC meeting is up tomorrow.

King sees the forest for the trees
The BoE’s King made a key overall point that has been evident for some time as a global theme: namely that global imbalances must be addressed or we risk a (I would say ongoing) game of competitive devaluation. “My concern is that in 2013 we’ll see the growth of actively managed exchange rates as an alternative to the use of domestic monetary policy.” See full Bloomberg article ( Welcome to FX Thunderdome may be the eventual call if we see an all-out escalation in what is already a competitive devaluation game (that the hard money EU core has failed to join and is the reason we have EURUSD at the current ludicrously high price near 1.3000.

EURCHF on the move again
EURCHF has perked up again today on the general Euro resilience, but also as we have the inevitable news that now UBS plans to charge negative rates for CHF deposits starting next week, joining its smaller rival Credit Suisse, who announced the same last week. All of this news will come to a head on Thursday at the SNB Libor target announcement and a possible (currently assessed as low odds, but some are looking for it) movement of the EURCHF peg. Meanwhile, the potential cap to EURCHF comes in the form of EU tail risks – the trading will likely remain volatile through the end of the week.

Is there an AUDUSD peg at 1.0475 that no one has informed me about? This pair has exhibited a stunning lack of volatility in the 1.0300 to 1.0500 general area over the last several weeks, in the sickliest of rallies. There must be some kind of volatility in the near future on the other side of tomorrow’s FOMC meeting. Long AUD positioning has been building on risk appetite, but the upside has been constrained by weak precious metals and mixed data out of China, as well as a declining yields at the front of the Australian yield curve and an ugly Business Confidence reading from Down Under overnight.


Looking ahead
The ZEW survey up at 1000 GMT is the data point the market is waiting to pivot on for the European session.
The Euro has perhaps managed to weather the uncertainty generated by the recent Italian political developments by the Greek buyback process, which has seen Greek yields collapsing as Greece seeks to buy back some of its debt at a “reduced” price – a price that has become far, far higher as . The deadline for the buyback has been extended as some are apparently holding out for higher yields and making the amount of overall debt retired by the process much smaller than one might have thought would be the case when the buyback was conceived. Greek 10-year yields were close to 30% over the summer and are now under 15%. Look for further announcements on the buyback process today. Meanwhile, the far larger bond markets in Italy and Spain still show signs of strain as yields remain well off their lows.

We’re all twiddling our thumbs in anticipation of tomorrow’s FOMC meeting. See yesterday’s update for a brief preview we’ll discuss in more detail tomorrow ahead of the main event as well.

Stay careful out there.

Economic Data Highlights

  • UK Nov. RICS House Price Balance out at -9% vs. -5% expected and -7% in Oct.
  • Australia Nov. NAB Business Conditions out at -5 vs. -5 in Oct.
  • Australia Nov. NAB Business Confidence out at -9 vs. -1 in Oct.

Upcoming Economic Calendar Highlights (all times GMT)

  • Germany Dec. ZEW Survey (1000)
  • US Oct. Trade Balance (1330)
  • Canada Oct. International Merchandise Trade (1330)
  • US Weekly API Crude Oil and Product Inventories (2130)
  • Australia Dec. Westpac Consumer Confidence (2330)


Rcernava Rcernava
Me thinks AUD is in for some big volatility either way FED moves :) I'm alarmed at it's stubbornness as of late.
nostrum nostrum
Just as an additional remark. Not just Credit Suisse and UBS are charging interests on CHF deposits. Some Cantonalbanks and smaller Regionalbanks started to implement it also. Of course they have not as much assets as the two big ones but it just shows that probably rather sooner than later most banks in Switzerland will adabt the negative rates.
Rcernava Rcernava
Chatter of a 1.25 floor from SNB coming.
nostrum nostrum
I would be very much surprised to see that. The 1.2000 level is well established and accepted in the market. Also in Switzerland the companies have been able to slowly adjust to this rate. With a floor of 1.2500 the SNB would just risk to get agressively tested by the market which I think they like to avoid.
tony1 tony1
i guess youre right if they give in to market pressure this early , theyll never stop


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