Both the euro and the franc were at the bottom of the forex pile last week. Will the upcoming set of catalysts be enough to spur a rebound?
ECB head Draghi’s testimony (Mar. 14, 8:30 am GMT)
Yep, the ECB head honcho is set to take the stage again this week! In the ECB presser, Draghi turned out to be a party-pooper as he tried to downplay the removal of the QE phrase in the official statement.
The Draghster went on to say that underlying inflation remains weak and that this could still prompt the central bank to revert to its easing bias. He also took a jab at Trump’s protectionist policies by mentioning that a trade war could bring in a lot of uncertainty.
His speech this week could cover more or less the same topics and, because it will take place as part of an ECB conference, his fellow policymakers could also chime in to share their biases. More efforts to try to temper the central bank’s shift away from a dovish bias could still keep a lid on the shared currency’s gains.
SNB monetary policy decision (Mar. 15, 8:30 am GMT)
Most of the central banks have already had their say, with the exception of Thomas Jordan and his fellow policymakers over at the SNB. As usual, no actual changes to interest rates are expected.
But with most SNB announcements, market watchers are always on the lookout for any kind of jawboning as this might hint of currency intervention down the line. Keep in mind that the Swiss central bank is keen on keeping the franc weak in order to keep inflation and its export activity supported.
Last Week’s Price Review
As of 2 pm GMT, the euro is the third worst-performing currency of the week after the safe-havens yen and Swissy.
Looking at the overlay of EUR pairs above, the we can see that the euro slumped when the new trading week got underway, thanks to the Italian elections resulting in a hung parliament, market analysts say.
However, the euro later recovered. There were no direct catalysts, but market analysts attributed the euro’s recovery to relief that right-wing, anti-EU parties did not dominated the Italian elections, as well as easing political jitters in Germany due to the SPD vote to form a coalition government with Angela Merkel.
After that, the euro traded roughly sideways while showing signs of being vulnerable to opposing currency price action, likely because traders were waiting for the ECB statement.
And when the ECB finally release its official press statement on Thursday, the euro reacted by spurting higher across the board because the ECB removed its easing bias in its QE program by purging the phrase below:
“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the asset purchase programme (APP) in terms of size and/or duration.”
Sadly for euro bulls, ECB Overlord Draghi gave his presser later and he came off as dovish since he highlighted the subdued inflation in the Euro Zone and stressed that monetary policy is “reactive”, hinting that the ECB is ready to return its easing bias if economic conditions deteriorate.
Draghi also heavily implied that the ECB’s loose monetary policy likely won’t change soon when he stated that there’s a “need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2% over the medium term.”
Moreover, the Draghster expressed some concerns about the negative effects of a trade war.
At any rate, Draghi’s cautious stance caused the euro to slide broadly lower. And using last week’s closing prices as reference (dashed horizontal line), we can see that this broad-based slide is the reason why the euro is a net loser of the week.
The Swiss Franc
The euro performed poorly this week, but the Swissy had it worse since the Swissy is presently the biggest loser of the week (as of 2 pm GMT).
But as you can see in the sample pairs below, the price action between Swissy and euro pairs were actually somewhat similar.
However, the Swissy was clearly more vulnerable since the euro traded roughly sideways until it got swamped by sellers on Thursday. The Swissy, meanwhile, was already tilting to the downside since Tuesday. And the likely reason for this is the prevalence of risk-appetite at the time due to news that North Korea is open to denuclearization talks, as well as fading fears of a potential trade war.