Stronger ECB tightening expectations lifted the shared currency this week, and the upcoming central bank decision could either support or downplay these.
ECB policy statement (June 14, 11:45 am GMT)
Head honcho Draghi and his gang of policymakers are gearing up to make their monetary policy decision this week and, even though no actual changes are eyed, euro traders are sitting on the edge of their seats for more hawkish hints.
Recall that sources close to the ECB recently shared that policymakers will be ready to give more deets on when they could finally end the QE program and possibly start hiking rates.
Any confirmation that September might be the month they bid adieu to bond purchases could drive the shared currency much higher while cautious remarks on the possibility of extending the program could pull the euro back down.
Keep in mind that the ECB decision will be followed by a presser, which means that Governor Draghi will likely be pressed (pun intended!) to provide more clues on their outlook and next policy moves.
Last Week’s Price Review
The euro is currently this week’s champion (as of 1 pm GMT) after closing out the previous week as a net loser. If the euro maintains its ranking until the trading day ends, then that would finally put an end to five consecutive weeks of net losses for the euro.
The euro had a somewhat promising start when it strengthened against everything except the Aussie and Kiwi. There were no positive catalysts at the time, but market analysts were quick to point to easing political fears in Italy after the 5-Star Movement and League announced that they have finally hammered out a new coalition deal and Conte was re-appointed and given a mandate by Italian President Mattarella to form a new government last week.
The euro then traded sideways for a bit before becoming more mixed and then shooting higher across the board when Bloomberg released a report that claimed that the ECB will likely discuss an end to its QE program during next week’s ECB meeting.
More euro bulls were enticed to charge in on Wednesday, thanks to hawkish rhetoric from a bunch of ECB officials. I detailed what those ECB officials had to say in Wednesday’s London session recap, so click on that link if you want the details.
However, the ECB official that triggered the euro’s broad-based rise was ECB Chief Economist Peter Praet since he was the first to speak and he apparently confirmed the Bloomberg report when he said that:
“Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases.”
Moving on, the euro continued to gain at the expense of its peers on Thursday. There weren’t really any fresh catalysts, but as noted in Thursday’s London session recap, market analysts were still pointing to the hawkish rhetoric from ECB officials.
The euro’s rally eventually began to lose steam during Thursday’s U.S. session. Aside from profit-taking by bulls ahead of next week’s ECB statement, there was no clear reason why, though.
At any rate, most EUR pairs began to tilt to the downside after that. And even more bears came out to maul the euro after German economic data failed to meet expectations on Friday.
Also, there were growing concerns over the souring trade relations between the U.S. and E.U. on Friday, which may have also weighed down on the euro. The euro even got a bearish kick when Trump tweeted the following ahead of the G7 meeting.
Looking forward to straightening out unfair Trade Deals with the G-7 countries. If it doesn’t happen, we come out even better!
— Donald J. Trump (@realDonaldTrump) June 8, 2018
After that, the euro’s price action became more mixed, though.
The Swiss Franc
The Swissy is the third weakest currency of the week (as of 1 pm GMT), while the euro was THE top currency of the week. Does that mean that the EUR and CHF pairs decoupled again?
Well, EUR and CHF did decouple on Wednesday and Friday. Other than those two days, however, EUR and CHF pairs did dance mostly in tandem and had roughly similar price action.
So, what happened on Wednesday and Friday?
Well, as mentioned earlier when we discussed the euro, euro bulls kicked into high gear on Wednesday after ECB officials gave some rather hawkish comments. The Swissy failed to follow the euro higher, however.
In fact, the Swissy began to encounter selling pressure on most pairs, likely because risk-taking initially prevailed at the time.
As for the decoupling on Friday, that’s actually a bit weird since the Swissy was broadly weaker, even though risk aversion prevailed on Friday. The Swissy even continued to slide as the euro’s own price action became more mixed.
One possible reason is that the SNB was sneakily weakening the Swissy again. However, it’s also possible that some market players were unloading the Swissy from their portfolios ahead of this Sunday’s Swiss referendum on a sovereign money system.