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Daily Forex Strategy Briefing

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EUR/CHF Unlikely to Fall Below 1.50

Tue, Jul 14 2009, 01:13 GMT
by Hans Nilsson

CMS Forex

EUR/CHF Unlikely to Fall Below 1.50

• The dollar fell as risk sentiment improved and US stocks rallied on Monday. The S&P 500 rose 21.92 points to 901.05. The yen declined as financial stocks rallied on an upgrade on Goldman Sachs. Japan’s Cabinet Office raised its assessment for the economy for a third consecutive month. The euro and sterling reversed earlier losses. The Australian and Canadian dollars advanced on improving risk appetite. The AUD/USD reversed earlier losses after a successful test of the 0.77 support. The USD/CAD fell but did not break the 1.15 support.


• The EUR/CHF rose modestly for a second day. However, the pair has fallen since its recent high on June 24, the last time the Swiss National Bank intervened to support the pair. The EUR/CHF has not been below the 1.50 handle since March 12. The SNB has been worried about deflation and bought the pair each time it threatened to fall below 1.50. Many Eastern European mortgages are denominated in Swiss franc, which is another reason to prevent the Swiss franc from appreciating. Therefore, we expect new intervention if the pair approaches 1.50 again. We may buy the pair as it approaches 1.51. There should be little downside risk.

Financial and Economic News and Comments

US & Canada

• The US budget deficit totaled a record $1.1 trillion for the fiscal year that began October 1, the Treasury Department said. The June deficit was $94.3 billion, the first shortfall for that month since 1991, compared with a $33.5 billion surplus in the same month a year earlier.


• US commercial construction is likely to decline 16% in 2009 and 12% in 2010, the American Institute of Architects said.


• Expectations are improving for future Canadian sales growth. Sixty-one percent of executives said sales growth will quicken over the next year, while another 23 percent said it will slow, the largest gap since Q4 1999, according to the Bank of Canada’s Business Outlook Survey.


• Obtaining new loans for Canadian businesses is getting less difficult. The percentage of loan officers saying credit was harder to access outnumbered those saying it was easier by 33 percentage points, less than the 60 points in the previous survey in April, according to the latest BOC Senior Loan Officer Survey.

Europe

• Switzerland’s producer and import prices remained flat m/m in June after a 0.3% m/m decline in May, the Swiss Federal Statistical Office reported. Producer and import prices fell a more-than-expected 5.6% y/y, following May’s 5.0% y/y decrease.


• European Central Bank President Jean-Claude Trichet urged commercial banks to pass on cheaper credit. ECB Governing Council member Michael Bonello said the central bank is “satisfied” with its current monetary stance, indicating it won’t change interest rates or expand its asset-purchase program anytime soon.

Asia-Pacific

• Japan’s industrial production was revised downward to a 5.7% m/m increase for May from a preliminarily reported 5.9% m/m gain, according to May final IP data from the Ministry of Economy, Trade and Industry. May IP fell 29.5 y/y. Capacity utilization was also revised downward to a 8.0% m/m rise from a preliminarily reported 10.2% m/m gain. May capacity utilization dropped 32.5% y/y.

• The Japanese consumer confidence index excluding one-person households rose to 37.6 in June from 35.7 in May, indicating Japan’s household sentiment climbed for a sixth consecutive month, according to the Cabinet Office. The index has improved every month since December’s record-low 26.2, signaling Japan’s recession is easing somewhat; however, a reading below 50 means pessimists outnumber optimists. Including one-person households, the consumer confidence index increased to 38.1 from May’s 36.3.

• The Japanese economy remains “in a difficult situation” but is “picking up,” the Cabinet Office said in a monthly report, raising its assessment for a third straight month.

FX Strategy Update

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Published on  Tue, Jul 14 2009, 01:26 GMT