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EUR/CHF back above 1.10, USD/JPY tests 114.5 resistance
Euro expected to rise even more against the Swiss Franc
EUR/CHF finally managed to break somehow the 1.10 resistance to the upside yesterday. However further gains are needed to clear the way towards 1.11. The general environment for EUR/CHF has improved substantially since the French Presidential election and the many setbacks faced by populist movements across EU members overall, allowing to reduce buying pressure on the Swiss franc. This also helped return confidence to investors and translated into a yield rally that allowed German 10-year to climb back into positive territory.
Nevertheless, the prospect of the ECB reducing its Quantitative Easing program was the most significant driver recently. It gave a fresh boost to European yields and fuelled the EUR/CHF rally as investors moved to higher-yielding currencies. However, the excess cautiousness of the ECB together will faltering inflation pressures will keep investors in their toes until the next ECB meeting on July 20.
We remain constructive on EUR/CHF and believe there is room for further appreciation of the pair. However, investors should remain cautious and especially not create unrealistic expectations about an abrupt unwinding of the ECB’s monetary policy. Mario Draghi will take it slow, as usual.
Yen will keep falling, as Bank of Japan defies other central banks on rate hikes
The Bank of Japan looks likely be the only major central bank that will not to raise its interest rates this year. This is one great reason why investors are staying away from the JPY.
The yen keeps just keeps on falling. The USD is now at around 114 JPY, the yen’s weakest since mid-May, compared to levels of around 100 JPY in September of 2016. JPY’s movements against the EUR have been similar. JPY’s decline is driven be monetary tightening from other central banks: first the US Federal Reserve, then the ECB, with similar moves expected from the Bank of England, Bank of Canada, Norway’s Norges Bank and Sweden Riksbank.
Meanwhile, nothing has changed in BoJ’s monetary policy. The Japanese institution is still set to purchase an unlimited amount of bonds at a defined yield.