Three notable events by Wednesday and this morning a black swan from the Swiss National Bank.

The major currencies once again had been under the microscope, the Euro and the USD the market awaiting the outcome of the ECB meeting on 22nd and constantly seeking evidence of US growth.

What happened this morning was not on any one’s radar as the SNB lifted the peg it has sustained for 3 years against the Euro. The effects are as yet unknown as to where the CHF will settle…it has seen massive upward moves across the board in its pairings.

In addition the SNB reduced interest rates to -0.75%

Forex Fundamentals; confusion and uncertainty;

Yesterday brought a disappointment with US retail sales missing a 0.2% target at -0.9%, and this in December! The USD fell on the news but bounced. There is a growing opinion that the FOMC will delay rate hikes and adopt a more dovish stance on the current softening data. However there is a good deal more to watch out for and as we have seen opinions can change very quickly.

On Wednesday the European Court of Justice declared Draghi’s plans for QE, known as OMT, Outright Monetary Transactions as legal thus laying the path for the ECB to launch its program of liquidation. The speculation will continue.

Confusion was compounded by the World Bank lowering forecasts for global growth, and singled out Eurozone and Japanese weakness and contrasted with them the US and also UK growth. They saw winners and losers form the oil rout, the UK one of the countries expected to benefit . Oil exporters are of course severely affected in terms of their growth.

They warned that Euro stagnation could produce a serious problem across the globe and particularly hard hit could be the UK and Switzerland. They urged the ECB to act.

Their statement contained warnings and conflicting factors. The global economy could not rely on the US recovery to save the day. Whether the US growth can survive the global weakness remains to be seen.The World Bank clearly see the Eurozone’s policy decision as critical.

So it seems does the SNB, undermining the ECB and making a decision which completely took the market unawares. The pressure on Draghi  has been building, what the SNB did was not only to undermine its own credibility as a central bank committed to its policy but the credibility of the ECB and central banks globally. And it did so , significantly a week before Draghi’s awaited and expected decision to launch QE.

 Forex Fundamentals; Sentiment

With this news, the uncertainty in the EZ, the US data and the concern over the global forecasts it is little wonder that the market is nervous with bonds already rising earlier in the week along with equities  and yields falling even before Thursday.

Gold jumped up on Swiss news.

The Vix, otherwise known as the ‘fear indicator’ gapped this morning and is currently up at 21.48 having made a significant move this week.

As for currency pairs, Swiss franc strength and euro weakness, the USD Index is volatile to say the least!

 

 Forex Fundamentals; Commodities

Commodities are still falling although oil did rally yesterday. Copper dropped on the World Bank news. The Aussie however rallied on very good employment data lowering the possibility of rates being lowered.

There is still important news from the US both Thursday and Friday including unemployment and CPI. The US policy which will dictate currency strength and weakness is data driven with an emphasis on inflation and labour statistics. US data does move the market and is essential to watch.

This has been a major news week, a time of shifting sentiment and uncertainty and that never makes for easy prediction in the forex market. It is a difficult environment to trade. Stay tuned for a full report and more insights in Monday’s report.

 

Judith Waker

fotistradingacademy.com