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Research Market strategy
by Swissquote Analysts
Daily Market Brief

EUR/USD breaks 1.1910, EUR/CHF slides

EUR/CHF stalls as ECB meeting get closer

By Arnaud Masset

Despite failing to extend gains beyond the 1.15 threshold, EUR/CHF was able to consolidate gains. The pair has been trading between 1.1259 and 1.1538 for the past four weeks. However, the single currency has completed its catch-up rally against the Swiss franc. Further gains are therefore unlikely, especially against the backdrop of mounting uncertainties ahead of the ECB’s September meeting and the current valuation of the EUR against its peers.

Since the beginning of the year, the single currency has risen more than 8.5% on a trade-weighted basis, while it has gained “only” 7.30% against the Helvetic currency, with the latter still making the most of its safe haven status. However the tide is slowing turning in favour of the CHF again as Draghi keeps investors in the dark. The resurgence of fears that Draghi under-delivers will most likely weigh on EUR/CHF over the next few days.

Looking at the SNB’s total sight deposits, one notices that is has remained quite stable through the summer with domestic deposits shrinking by roughly CHF 17.3bln, while total deposits edged up by CHF 3.7bln. This stabilisation allowed the SNB to spend a nice and quiet summer. However the 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 maintain our bearish view on the pair as we expect investors will soon return to safe haven ahead of next week’s ECB meeting.

Draghi sends the euro above 1.19 after Jackson Hole

By Yann Quelenn

The Eurodollar pair has spiked in Friday above 1.1950 on Draghi’s comments, its highest level since January 2015. He mentioned that he is confident about the global recovery which he considers that is improving. Yet, he added that the economic recovery has still a long way to go in Europe and in Japan compared with the US recovery.

The single currency spiked and Mario Draghi failed to limit buying pressures on the single currency. Markets pared their gains after he mentioned that more accommodative monetary policy are still needed. Next ECB meeting will be held the 7th of September and markets seem to expect too much. We believe that there are strong room for further disappointment. The inflation target is far from reached and would take more time than needed to be attained. Yet, with the bonds scarcity issue, it is going to be tough for the ECB to maintain accommodative monetary policy too long. Markets’ confidence in the ECB may be at stake at some point. The single currency will certainly head higher until the ECB meeting before bouncing lower.

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