The shared currency managed to shrug off cautious ECB vibes as it took advantage of dollar weakness last week. This time, trade tensions could remain front and center, possibly keeping the franc on top.
Euro zone medium-tier data (starting June 25)
The battle among European nations ain’t just in the World Cup arena this week as the top dogs like Germany and France are scheduled to print their inflation and spending reports. Spain and Italy are also set to join the action with their preliminary CPI readings.
All these could serve as leading indicators for the region’s flash CPI readings due on Friday, and this could generate a stronger reaction as it would provide ECB tightening forecasts more context.
As with most major currencies these days, the euro and the franc could stay on edge when it comes to trade war developments.
In particular, the shared currency is on the lookout for escalating tensions when it comes to auto tariffs as the Donald already threatened to slap a 20% tariff on European Union-assembled cars coming into the United States.
According to EU official Jyrki Katainen, they might have no choice but to retaliate with another set of duties on American products, on top of the $3.3 billion it already targeted the previous week.
These trade troubles appear to be music to the franc’s ears, though, as it surpassed the lower-yielding yen in raking in safe-haven flows earlier on.
Last Week’s Price Review
The euro had a reversal of fortunes since it was the third worst-performing currency last week but it’s currently on track to closing out the week in third place (as of 1 pm GMT).
There were no direct catalysts, but the euro had a promising start, likely because of short-covering after last week’s selloff in the wake of the ECB’s disappointing forward guidance.
The euro’s recovery was cut short when the Greenback began to gain strength after Former U.S. Treasury Secretary Lawrence Summers was interviewed, though. And more euro bears came out to maul the bulls when ECB Overlord Draghi reiterated last week’s message that rates ain’t moving anytime soon when Draghi said that:
“We will remain patient in determining the timing of the first rate rise and will take a gradual approach to adjusting policy thereafter.”
“The path of very short-term interest rates that is implicit in the term structure of today’s money-market interest rates broadly reflects these principles.”
Interestingly enough, there was only limited follow-through selling and the euro eventually began to find support.
After that, euro pairs began to tilt slightly (but broadly) to the upside. There were no apparent catalysts, however, and only a few market analysts tried to explain (or even acknowledge) the euro’s steady rise.
The euro’s steady climb was finally ended when the euro got kicked lower across the board after the news that Claudio Borghi and Alberto Bagnai were chosen to respectively head the Budget Committee in the Italian Chamber of Deputies and the Finance Committee in the Italian Senate, given that the two are known to be euroskeptics.
The euro quickly recovered, however, probably because of the debt relief granted to Greece. However, it’s also likely that the euro was feeding off the Greenback’s weakness at the time, which market analysts tried to blame on the Philadelphia Fed’s disappointing manufacturing PMI report.
In any case, the euro resumed its climb, getting a final bullish kick when Markit released the latest batch of PMI reports for Germany, France, and the Euro Zone as a whole, which were viewed as positive overall.
The Swiss Franc
The Swissy is currently THE top-performing currency of the week (as of 1 pm GMT).
Looking at the sample pairs below, EUR and CHF pairs obviously had roughly similar price action. However the Swissy didn’t really react to Draghi’s dovish comments on Tuesday. And as mentioned earlier, the euro got slapped broadly lower because of Draghi.
The Swissy also didn’t have a negative reaction to the news that the euroskeptics Claudio Borghi and Alberto Bagnai were chosen to respectively head the Budget Committee in the Italian Chamber of Deputies and the Finance Committee in the Italian Senate.
In fact, the Swissy actually found buyers, likely because that news was a source of uncertainty, which is good for the safe-haven Swissy.
Amusingly enough, the news about those appointments coincided with the SNB Statement. And as mentioned in Thursday’s London session recap, SNB Overlord Thomas Jordan tried his best to sound dovish and even repeated the SNB’s mantra that the SNB will continue to “intervene in the foreign exchange market as necessary.” However, that didn’t have any apparent effect on the Swissy’s price action.