Swiss KoF Improves

Forex News and Events

Fed leaves rates unchanged:

“Yesterday at the FOMC meeting, the Fed did not make any changes concerning its monetary policy. The interest rates remain unchanged at 0.25%. Yet, what was more expected was the hints that could be given in favour of a September rate hike. And no major changes from the April statements to the June statements have been done that would indicate a closer lift-off. However, interpreting those statements is a tough exercise and one may think that a single word reveals the Fed’s intentions. The truth is that no clues have been provided about when a hike will happen. We then consider the June statement as a dovish statement.

After the meeting, the US indices closed higher as markets are clearly doubting of a September move which would end the era of cheap money. The S&P500 closed at +0.73%. Furthermore, the odds for a September rate hike is now assessed at 0% by the CME Group FedWatch while it is now appraised above 50% for December.

Today, all eyes will be focused on the US Q2 GDP. We think that a poor data will end up speculations for a September lift-off. Besides, data is expected to come in better than the disappointing Q1 figure of -0.2% q/q. Estimates are around 2.5%. We do not forget that over the last quarter, most economic data came in mixed. Consequently, we do not expect a strong GDP.

Hence, we target a short-term rebound for the EURUSD and 1.1000 seems a decent target. However, on the medium-term we remain bullish on the USD-complex even if the recovery is definitely not as sustainable as what it seems. Indeed, June homes sales collapsed by 2% q/q.”

Yann Quelenn – Market Analyst

Swiss KoF Improves

In a surprise read, the Swiss KOF Leading Economic Barometer rose by 10 points to 99.8 points in July 2015 (from revised 89.8 in June). Yet indice reamins on contraction territory. In addition the statement sounded upbeat on the outlook for the Swiss economy. In regards to the SNB decision to remove the EURCHF minimum exchange rate the statement said , “ the strong Swiss franc continues to place a burden on the Swiss economy, however, the first shockwave after the abandon of the minimum price is clearly losing its power. ” However, the statement did admitted that its limited reach could have influenced the strong result. Yet the overall meaning, according to KOF, was that the Swiss economy should begin to normalize.

We remains skeptical that today’s KOF release is a reliable reflection of Swiss growth prospects. Recent correlation between KoF and GDP has broken down (KoF failing to measure the sharp decline in GDP growth). The shift in behavior due to the strong CHF will be a long run episode not deciphered in a month or quarter. Drop in Swiss retails sales (May-1.8%) is just a small indication that consumers are changing their behavior to the detriment of the Swiss economy.

We remain negative on the CHF and see the USDCHF as the “purest” play for the monetary policy divergence story developing. USDCHF further recovery above the 200MA indicates an extension of bullish trend targeting 0.9855 key resistance.

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