The euro took most of its cues from Brexit updates last week while the franc rose to the top spot on risk-off flows. Will the ECB and SNB steal the spotlight this time?
SNB policy assessment and presser (Dec. 13, 8:30 am GMT)
No actual monetary policy changes are expected from the SNB as they’ve been sitting on their hands and keeping rates on hold at -0.75% since March 2015.
But like a dormant volcano that suddenly explodes when you least expect it, the SNB does have a tendency of shocking the markets with drastic moves that lead to similarly explosive price action on franc pairs.
Although such move could be unlikely for now, do watch out for any jawboning or threats to weaken the franc in order to keep inflation and exports of Swiss cheese and chocolate supported. After all, the franc has been the main beneficiary of risk-off flows recently, so fellas over at the SNB might want to keep those rallies in check.
ECB policy decision and presser (Dec. 13, 12:45 pm GMT)
Next up, ECB head honcho Draghi and his fellow policymakers are also warming up for their monetary policy statement, although no actual changes to interest rates or asset purchases are also eyed.
Keep in mind that Draghi’s latest testimonies have been on the cautious end as he has acknowledged that data since their September meeting has reflected weaker momentum. Market watchers are keen to find out if this would affect their tightening timeline, and questions of this nature are likely to keep coming up during the presser.
Other topics that are likely to come up are Brexit, trade troubles between the U.S. and China, falling crude oil and Italy’s debt, although words of reassurance on these issues might give the shared currency some support.
Last Week’s Price Review
The euro is a net winner again this week since it’s currently in third place (as of 2 pm GMT).
The euro’s price action is rather difficult to summarize, but one way to put it is that the euro got a lift from growing hopes that Brexit would be reversed, but the euro outperformed the pound because the euro also benefited from the Greenback’s early weakness, as well as a rumor that Italy finally relented and would submit a revised budget next week.
Like last week (and the week before that), the euro’s price action was rather messy for the most part.
The euro also still appears to be somewhat vulnerable to opposing currency price action since there are still instances of clearly diverging price action on EUR pairs.
However, the euro did have roughly uniform price action, especially at the start of the week. You can see this by simply removing EUR/GBP from the overlay.
As you can see, the euro had a mixed start, got kicked broadly lower during the Monday’s London session, then caught a bid during Monday’s U.S. session.
And as noted in Monday’s London session recap the euro may have been weighed down because of a recovering Greenback and Brexit-related jitters.
As for the later recovery, that may have been due to Greenback weakness since the Greenback took hits when fears of a potential U.S. recession flared up because of the yield curve inversion of some U.S. bonds.
The euro’s price action then became more mixed during Tuesday’s Asian session, but the euro continued to tilt higher on most pairs (except EUR/NZD and EUR/JPY), likely because the euro was still feeding off the Greenback’s weakness.
The euro also appears to have been pushed higher during Tuesday’s London session after the ECJ’s Advocate General released an advisory opinion recommending that the U.K. should be allowed to unilaterally reverse Brexit.
However, the Greenback would finally regain its mojo when Tuesday’s U.S. session rolled around, so the euro also broadly retreated.
The euro’s bleeding would finally stop when Theresa May’s government was found in contempt of Parliament and was ordered to release the full legal advice on her Brexit deal. And there was apparently some soft buying pressure since the majority of EUR pairs had a slight upward tilt leading up to the release of the legal advice.
And when the Brexit legal advice was finally released during Wednesday’s London session, the euro began to encounter sellers, likely because of profit-taking since the Brexit legal advice confirmed that the backstop solution to the Irish border issue may be a sneaky way to keep the U.K. within the E.U.
Fortunately for the euro, buyers were later revived during Wednesday’s U.S. session when a report came out claiming that Italy has supposedly relented and is planning to revise its budget and send it to the E.U.
Broad-based demand for the euro was only limited, though, and the euro’s price action eventually became more mixed.
The euro’s price action would become somewhat uniform again during Thursday’s London session, likely because the euro also benefited from growing hopes that Brexit would be reversed since British PM Theresa May’s was being interviewed at the time and she suggested that reversing Brexit is an option when she said that (emphasis mine):
“There are three options: one is to leave the European Union with a deal… the other two are that we leave without a deal or that we have no Brexit at all.”
There was also this announcement, which ties up with what I mentioned earlier about the recommendation from the ECJ’s Advocate General to allow the U.K. to unilaterally end Brexit.
The judgment in the Article 50 case will be issued at 9am Luxembourg time on 10 December 2018.
— Jo Maugham QC (@JolyonMaugham) December 6, 2018
After that, the euro’s price action became more range-bound. The ECB statement is coming up next week, though, so we’ll hopefully see more uniform price action from the euro next week.
There’s also that ECJ decision on Brexit, the British Parliament’s vote on Theresa May’s Brexit deal, and Italy’s revised budget to look forward to.
The Swiss Franc
The Swissy is currently the top performing currency of the week (as of 2 pm GMT), but if you thought that the Swissy is the top-performer of the week because it was the safe-haven currency of choice this week, then you would probably be wrong.
As you can see in the overlay above, the yen was beating the Swissy for the most part.
And as you can see in the sample pairs below, the euro actually had the advantage for most of the week and it was the Swissy that was trailing behind.
The Swissy would finally gain the lead against the euro and the yen during Thursday’s U.S. session, likely because the yen was out of commission due to the recovering bond yields at the time and the Swissy got an extra boost due to the risk-off vibes.
The Swissy also benefited more from the disappointing NFP report, likely because that caused risk aversion to plague Wall Street.