Swiss francs caught in crossfire, US rate lift-off postponed

Forex News and Events

Swiss franc caught in crossfire (by Arnaud Masset)

USD/CHF fell more than 5% as traders started to price out a lift-off in September from the Federal Reserves. In our opinion, the correction in USD/CHF is not over yet and we expect the dollar to continue to depreciate slightly against the Swiss francs in the short/medium-term with 0.9150 as the next target. However, the dollar weakness may be temporary as December is becoming traders’ favourite month for a lift-off.

After a few days of hesitation, EUR/CHF is on rise the again, boosted by strong German IFO figures and renewed confidence in euro zone’s ability to generate growth. The pair just broke its 200dma as well as the resistance implied by the high from February 20 (at 1.0812). On the upside, the key level standing 1.10 will be the real test for EUR/CHF and a strong boost will be required to break that threshold to the upside. We expect the recent positive momentum to continue, especially since the Swiss economy suffer the consequences of a loss of competitiveness due to a strong CHF.

U.S.: Fed is not going to raise rates in September (by Yann Quelenn)

Yesterday, the Federal Reserve Bank of Atlanta President Dennis Lockhart spoke to the 2015 Public Pension Funding Forum. Traders expected some hints from the Fed’s member about a possible rate hike in September. Lockhart only mentioned that the global market outlook, and more specifically the strong dollar, the yuan devaluation and the falling oil prices are making difficult to predict the pace of the growth. In other words, he was saying that raising rates was not possible under those market conditions.

Hence, Dennis Lockhart refused to confirm that he would favour a September lift-off. On our side, we remain negative about a September rate hike as we are still thinking that U.S. data are still not fully supporting a change in the monetary policy. In addition stock markets are collapsing and therefore prevent any rate hike at the moment. Indeed, it threatens the Fed’s objective of financial stability and full employment.

The ongoing situation confirms our view that there will be no rate hike in September. Stocks markets are still overpriced. For the U.S., it is the result of the ZIRP (zero-interest rate policy) which flooded money into the stock market in expectations for the investor to get returns. The efficiency of quantitative easing has also to be questioned. It can be seen as a leverage of the zero-interest rate policy. And what if the U.S. decided to launch a next quantitative easing policy, a QE4. This is something that we have to think as long as there is no clear U.S. recovery. Besides, major economists were thinking about a September rate hike, however (almost) no one ever predicted a single crisis.

EURUSD is going higher and we think the move is not going to stop yet. Targeting 1.20 seems a decent target. Nonetheless, the Eurozone is still struggling to enter into a sustainable recovery and the surge in EURUSD is likely to be temporary.

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