Allez les bleus! France’s victory in the World Cup could keep euro traders in a cheery mood unless economic catalysts change the game.
Euro zone final CPI (July 18, 9:00 am GMT)
With euro traders keeping their eyes and ears peeled for any clues on when the ECB might start hiking interest rates, the CPI readings could be crucial in setting direction.
But since the flash estimates were already printed a few days back, the impact of the final figures could be limited… unless there are major revisions, of course.
For the month of June, the headline CPI could stay unchanged at 2.0% while the core CPI could be maintained at 1.0%. Note that the divergence is being pinned on the recent surge in crude oil prices, so market watchers might be reminded that the pickup may be due to temporary factors.
Overall sentiment and dollar demand
As we’ve observed in recent price action, the euro tends to take advantage of dollar weakness while the franc also undergoes stiff competition in a safe-haven standoff.
One thing to keep in mind is that the EU could broker a deal with China if trade relations with the U.S. show cracks. Another factor worth noting is that a stronger likelihood of a “soft Brexit” could also be advantageous for the bloc.
With that, these themes could continue to play a role on euro and franc behavior in the days ahead, especially since trade-related concerns remain the stuff of headlines. Worsening trade tensions could even prove positive for the franc if these wreak havoc on U.S. bond yields and stocks.
Last Week’s Price Review
The euro is turning in a mixed performance this week (as of 1 pm GMT). The euro is a net winner, though, so the euro is currently on course for its fourth week of net wins.
The euro’s price action this week has been a chaotic mess, with lots of instances when EUR pairs clearly diverged. And that implies that the euro was vulnerable to opposing currency price action.
With that said, the euro did have brief periods of uniform price action, thanks to some catalysts.
As for specifics, the euro got stomped broadly lower when a bunch of disappointing Euro Zone economic reports were released during Tuesday’s London session.
The euro also staged a broad-based recovery during Tuesday’s U.S session, but there was no clear catalyst for that. The Greenback was taking a break from its rally at the time, though, and it’s possible that the euro was feeding off the Greenback’s weakness at the time.
The euro also jumped higher across the board at the start of Wednesday U.S. session, apparently as a reaction to a Reuters report that claimed that ECB officials are not of one mind when it comes to the meaning of the ECB’s forward guidance that rates ain’t moving up “through the summer of 2019,” with some ECB officials allegedly saying that a rate hike may be warranted as early as July 2019, provided inflation meets or beats the ECB’s expectations.
The report also claimed that “Some [ECB officials] expressed annoyance with an overly dovish message by ECB President Mario Draghi that pushed rate hike expectations to December, a date hawks consider too late.”
At any rate, there wasn’t really any follow-through buying after the initial jump and the the euro’s price action became a mixed mess after sliding for a while.
The last instance of uniform price action is when the euro weakened across the board after the ECB’s meeting minutes were released during Thursday’s London session. And as noted in Tuesday’s London session recap, that’s probably because the minutes had a rather dovish vibe since ECB officials were stressing that:
“[I]t was important to highlight that, even after a termination of the net asset purchases under the APP, monetary policy would continue to be very accommodative.”
Moreover, the minutes reinforced the idea that interest rates aren’t moving anytime soon since the minutes noted that (emphasis mine):
“Regarding the enhanced forward guidance on policy interest rates, it was felt that the open-ended character of the state-contingent component should be emphasised, with policy rates expected to remain at their present levels for as long as necessary to ensure that the evolution of inflation remained aligned with the Governing Council’s current expectations of a sustained adjustment in the path of inflation.”
Anyhow, the bearish reaction to the ECB minutes was only short-lived since the euro bounced higher after the Greenback stumbled when U.S. CPI failed to meet expectations.
The euro then began to tilt broadly lower after that bounce, before becoming more mixed come Friday. And according to market analysts the euro was encountering some selling pressure because of the Greenback’s strength, as well as the ECB minutes, which were considered dovish overall.
The Swiss Franc
The Swissy is the second weakest currency of the week (as of 1 pm GMT), which is a repeat of last week’s performance.
Like the euro, the Swissy’s price action was also somewhat messy. But as you can see in the overlay of CHF pairs above, the Swissy clearly weakened across the board on Thursday.
In fact, the broad-based slide on Thursday pulled most CHF pair below last week’s closing prices (dashed horizontal line) and is therefore the reason why the Swissy is on course to closing out the week as a loser.
As to what happened on Thursday, well, risk-taking was making a comeback at the time.