Market Drivers July 28, 2017
Europe and Asia
No data
North America
USD: GDP 08:30
CAD: GDP 08:30
USD: U of M 10:00
After years of slumber, EUR/CHF woke up this week, staging multi month highs and taking out the 1.1350 level in Asian session trade today for the first time since its crash more than 2 years ago.
The weakness in the franc is driven by fundamental factors as the market is coming to a realization that central bank policy divergence is starting to kick into high gear. The ECB is clearly turning away from quantitative easing as growth in the region improves while the SNB will remain resolutely dovish keeping its interest rates at -75bp for now.
As yields in German bunds rise, the EUR/CHF pair is likely to rise with them. The pair still remains well below the 1.2000 ceiling set by the SNB in 2014 and therefore has plenty of upside left, especially if growth in the EZ region accelerates.
After years of stagnant price action, EUR/CHF could become an active pair again as macro players and short term specs become attracted to the new volatility, especially because it is thematically based rather than just a function of short term central bank manipulation.
Elsewhere, the focus today will be on US GDP as traders focus on US growth in Q2 of this year. The forecast is for a jump to 2.6% from 1.4% the quarter prior, but the main data point will be real consumer spending which is expected to rise to 2.8% from 1.1% the period prior. A big boost in consumption would validate Fed’s hawkish stance and could put a more sustained bid into the dollar as markets reprice the prospect of higher rates.
USD/JPY has held the 111.00 several times in overnight trade and a positive GDP reading could push it back towards 112.50 over the near term horizon. However, if the number misses, the buck’s woes will only intensify and shorts will try to push USD/JPY through the 110.00 figure as the day proceeds.