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The upcoming ECB statement could make or break the euro’s climb as market watchers may be expecting more hawkish remarks. Does this mean more room for disappointment, though?

ECB policy statement (Apr. 26, 1:30 pm GMT)

The main event for the euro is likely to be the ECB policy statement and presser on Thursday, as bulls are hoping to hear another round of hawkish remarks from policymakers.

Recall that Governing Council Member Nowotny recently shared that the central bank could finally wind down the QE program by the end of this year and that he has no problem with adjusting the deposit rate.

ECB member Coeure also noted that monetary policy could keep supporting the economy even with some tightening. Head honcho Draghi, however, seems to be a bit more cautious in emphasizing that there’s still some slack left in the economy.

Last Week’s Price Review

The Euro

The euro is the second top-performing currency of the week (as of 1 pm GMT), second only to the Greenback. Although that could still change the euro’s weakness on Friday is allowing the yen to close the gap.

Despite the euro’s strong performance this week, however, commentary from market analysts were hard to come by. And for good reason, since there were only low-tier and mid-tier reports lined up this week.

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

Anyhow, the euro started on a mostly strong footing on Monday, even though there were no catalysts.

However, I noted in Monday’s London session recap that the euro appears to be tracking European bond yields. And if we look at the overlay of EUR pairs (excluding EUR/GBP) and the yield of Germany’s benchmark 10-year bonds, we can see that the correlation appears to have held true before finally breaking on Thursday.

Overlay of EUR Pairs & German 10Y Bond Yields: 1-Hour Forex Chart
Overlay of EUR Pairs & German 10Y Bond Yields: 1-Hour Forex Chart

In fact, the euro even climbed higher on Wednesday, even though the Euro Zone’s final March CPI reading was downgraded from 1.4% to 1.3% ahead of next week’s ECB statement.

As to why the correlation before European bond yields and the euro finally broke on Thursday, even though European bond yields continued to rise, that may have been due to net positive U.S. data, which reinforced expectations for further Fed rate hikes, building up demand for the Greenback at the expense of other currencies, with the euro being one of the victims.

That also helps to explain why price action on the euro became mixed on Thursday.

At any rate, the euro’s price action became uniform again come Friday. Once again, there were no major direct catalysts for the euro’s weakness. But as noted, in Friday’s London session recap, it’s possible that we’re just seeing some profit-taking after a week of broad-based euro strength and ahead of next week’s ECB statement.

The Swiss Franc

The Swissy is mixed but on course to be a net loser this week (as of 1 pm GMT), which would mark the fifth consecutive week of net losses for the Swissy.

Overlay of CHF Pairs: 1-Hour Forex Chart
Overlay of CHF Pairs: 1-Hour Forex Chart

And since the euro had a good run this week, does that mean that the Swissy and the euro finally parted ways?

Well, price action on euro and Swissy pairs were actually quite similar (as usual). But as marked on the sample pairs below, the Swissy was very clearly a lot weaker on Tuesday, likely because risk appetite got revived at the time. Although I also have a sneaking suspicion that the SNB was weakening the Swissy again.

NZD/CHF (inverted, red) vs.  EUR/NZD (black): 1-Hour Forex Chart
NZD/CHF (inverted, red) vs.  EUR/NZD (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart