30 Nov 2014
EUR/CHF spike after “No” vote to be short-lived - Nomura
FXStreet (Bali) - According to Yujiro Goto, FX Strategist at Nomura, the likely increase in EUR/CHF after the “No” vote against the gold referendum should be short-lived.
Key Quotes
"EUR/CHF rose initially in Monday morning, as the tail risk of a “Yes” vote for the gold referendum has been removed. EUR/CHF jumped to a level above 1.203, its highest level since 12 November. Even though the initiative did not force the Bank to purchase gold immediately, the initiative, if it had passed, could have reduced the credibility of the SNB‟s commitment to protecting the exchange rate floor at 1.20. Today‟s referendum result likely will keep the credibility of the exchange rate floor high, supporting EUR/CHF."
"However, the rejection was largely expected, and the market should swiftly shift its focus to the monetary policies of the ECB and SNB. As the ECB is now likely to introduce sovereign QE next year, lower euro area yields will continue to pressure EUR/CHF, ahead of the ECB meeting on Thursday. Even though we do not expect the ECB to announce sovereign bond QE this week, the ECB's economic projections this week will likely be downgraded and President Draghi is likely to remain dovish."
"Market expectations for sovereign QE are expected to remain high, putting pressure on EUR/CHF over the coming months. Thus, we expect the likely increase in EUR/CHF after the “No” vote against the gold referendum to be short-lived. As EUR/CHF is still likely to trade weakly following the referendum today and the ECB meeting on Thursday, the next meeting of the SNB on 11 December will be important for the Bank."
"If the ECB decides on sovereign QE this week, the decision should be regarded as a proactive decision, which should lead to broader-based EUR weakness against major currencies, including CHF. EUR/CHF will face stronger depreciation pressure then, and we would not be surprised if the market tests a EUR/CHF floor. Under this scenario, the SNB‟s response at the next meeting on 11 December will be more important and the chance of the Bank embarking on the negative rates will be higher, to increase the credibility of FX intervention."
"We believe the SNB's commitment to protecting the exchange rate floor remains strong, as disinflation pressures are strong in Europe; and today‟s referendum result is likely to increase the credibility of that commitment. The SNB released a statement on the referendum result in which it reiterated that it will enforce the exchange rate floor with utmost determination and that it is prepared to take further measures immediately. Thus, we do not expect EUR/CHF to break the 1.20 floor."
Key Quotes
"EUR/CHF rose initially in Monday morning, as the tail risk of a “Yes” vote for the gold referendum has been removed. EUR/CHF jumped to a level above 1.203, its highest level since 12 November. Even though the initiative did not force the Bank to purchase gold immediately, the initiative, if it had passed, could have reduced the credibility of the SNB‟s commitment to protecting the exchange rate floor at 1.20. Today‟s referendum result likely will keep the credibility of the exchange rate floor high, supporting EUR/CHF."
"However, the rejection was largely expected, and the market should swiftly shift its focus to the monetary policies of the ECB and SNB. As the ECB is now likely to introduce sovereign QE next year, lower euro area yields will continue to pressure EUR/CHF, ahead of the ECB meeting on Thursday. Even though we do not expect the ECB to announce sovereign bond QE this week, the ECB's economic projections this week will likely be downgraded and President Draghi is likely to remain dovish."
"Market expectations for sovereign QE are expected to remain high, putting pressure on EUR/CHF over the coming months. Thus, we expect the likely increase in EUR/CHF after the “No” vote against the gold referendum to be short-lived. As EUR/CHF is still likely to trade weakly following the referendum today and the ECB meeting on Thursday, the next meeting of the SNB on 11 December will be important for the Bank."
"If the ECB decides on sovereign QE this week, the decision should be regarded as a proactive decision, which should lead to broader-based EUR weakness against major currencies, including CHF. EUR/CHF will face stronger depreciation pressure then, and we would not be surprised if the market tests a EUR/CHF floor. Under this scenario, the SNB‟s response at the next meeting on 11 December will be more important and the chance of the Bank embarking on the negative rates will be higher, to increase the credibility of FX intervention."
"We believe the SNB's commitment to protecting the exchange rate floor remains strong, as disinflation pressures are strong in Europe; and today‟s referendum result is likely to increase the credibility of that commitment. The SNB released a statement on the referendum result in which it reiterated that it will enforce the exchange rate floor with utmost determination and that it is prepared to take further measures immediately. Thus, we do not expect EUR/CHF to break the 1.20 floor."