Raphael Sonabend, FX Analyst
The Swiss National Bank (SNB) shocked the markets yesterday as an emergency meeting announced the end to the EUR/CHF cap and an adjustment of the Libor rate to -0.75%. In a move that was dubbed ‘Francogeddon’, this was surely a sign that the bank feared the effects of QE on the Swiss economy and were trying to get out before it was too late. The Chairman of the bank, Thomas Jordan, denied that his judgement was a “panic reaction” and claimed it was a “well-considered decision”. Jordan, who was described as ‘possibly the most-hated man in FX’ yesterday, claimed that it was important for the bank to act quickly once it was clear that the policy was no longer sustainable. This immediately raised speculation that Jordan was tipped off (by Draghi himself?) that QE was guaranteed next week. Whilst this may seem slightly questionable, it is more likely Jordan was reacting to the European Court of Justice’s (ECJ) ruling that QE is legal in the Eurozone. The franc, which was previously considered a safe-haven currency (before the EUR/CHF cap), now has the potential to regain its safe-haven status once the markets have settled down (as Jordan assures they will soon). The franc strengthened over 25% against all peers and the euro plummeted against all counterparts. As the Eurozone continues to post poor data, the Bundesbank prepares to fight the ECB over QE and discord continues to spread throughout, economists will now be questioning whether yesterday marked the beginning of the end for the Eurozone…
GBP/EUR: Currently trading at 1.3085
Yesterday saw this pair break the 1.30 mark and the pound hold onto these gains. Still trading above 1.30 now, this pair has broken the resistance level and is trading within a tight range. After the SNB broke the news that they were leaving the 1.20 floor for EUR/CHF, the euro plummeted against all counterparts. The euro received some support after the president of Bundesbank, Weidmann, continued to fight against QE, highlighting the ECJ’s limitations and convincing traders that he wouldn’t just step aside for Draghi. With the SNB displaying signs of fear about next week’s QE announcement and Weidmann warming up for a fight, next week’s meeting should bring a lot of excitement.
As traders continue to react to yesterday’s news, the euro is likely to keep falling. In anticipation of the ECB conference next week, this negative trend is likely to prevail.
GBP/USD: Currently trading at 1.5230
The SNB’s announcement saw Cable spiking and plummeting between 1.5146 and 1.5267 before eventually settling around the 1.518 mark. US data yesterday was surprisingly poor as unemployment claims rose to 316K from 297K, above the predicted 299K, and the Philly Fed manufacturing index fell from 24.5 to 6.3, below the forecast 20.3. These poor figures were largely overshadowed by yesterday’s volatile markets and this pair continued to struggle for stability.
The pound has gained almost half a cent on the dollar in this morning’s session, possibly as a reaction to poor US data yesterday. No UK data due today and our focus will instead turn to the US, with this forecast to be quiet mixed, the pound’s gains could extend into this afternoon.
EUR/USD: Currently trading at 1.1636
This pair saw one of the largest reactions after the SNB’s emergency meeting, with significant volatility as the euro plummeted against the dollar. Falling from a high of 1.1747 to a low of 1.1568, traders sought after the dollar as the Euro seemed less secure. A EUR/USD sell-off is likely to continue throughout next week in anticipation of the ECB meeting, as the implementation of quantitative easing will make the dollar a more attractive currency for potential returns.
US figures today will hold the data spotlight however we assume its light will be dim as traders continue to buy and sell in anticipation of next week’s announcement. US monthly CPI is forecast to remain the same and preliminary UoM consumer sentiment is forecast to rise from 93.6 to 94.2, neither sets of data are likely to hold much influence today.
GBP/AUD: Currently trading at 1.8519
This pairing felt the ripples of the Swiss announcement yesterday and this rate fall below 1.84. Since then, the rate has stabilised, trading between 1.84 and 1.85.
With no data from either side of the pairing today, investors will be looking towards the US CPI data this afternoon, forecast to maintain last month’s reading of -0.3%.
GBP/NZD: Currently trading at 1.9507
As traders sold-off their franc in favour of the US dollar, commodity currencies shot up alongside the USD surge. As the US economy continues to remain strong, higher-yielding currencies benefited from the volatility as investors traded these pairings and the Kiwi climbed as a result. Falling from 1.9772 to 1.9323, the Kiwi saw significant strength.
Today’s US data is unlikely to move this pairing too much in either direction. This morning has seen the pound begin to recover its losses and this is likely to continue throughout the day.
GBP/CAD: Currently trading at 1.8248
The markets were roiled yesterday after the SNB abandoned the cap against the Euro. This allowed the Loonie to strengthen, before an increase in US Unemployment Claims data helped to reverse the gains.
Now that the dust has settled, we don’t expect there will be any more surprises. Today’s calendar is without any pairing specific data, which means the focus will be on the US. We don’t expect there will be much change and expect a less volatile day of trading.
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