WEEK AHEAD: MARCH 22

Short Description

EUR/CHF has been taking a breather after a big jump last month. I discuss whether this week’s SNB meeting will prompt another big move- and cover the weekly economic calendar. Thanks! Rich

Video Script

Will the SNB meeting be good for EUR/CHF ? - THE WEEK AHEAD (Mar 22-26, 2021)

 

 

Hi everyone, it’s time for another preview of the week ahead in forex and financial markets and since the Swiss National Bank meeting is this week, I thought it a good time to look at the Euro Swiss franc currency cross, which I think could be on the cusp of a big move. And of course I will run through the week’s economic calendar.

So looking at the weekly chart, we see the big slump in from the SNB shock in 2015. Since then a new long-term support formed at 1.06. EUR/CHF dropped briefly below that to 1.05 last year, where it formed a bottom and rallied back to 1.115 this year. On the daily chart we can see price has dipped back to 1.10. If 1.10 gives way, we could be looking at another drop back to 1.06. However, the break of the down-sloping trendline suggests we could see further upside with resistance from the 61.8% Fibonacci up near 1.14.

OK let’s switch gears to the economic calendar for a moment. It’s the interest rate decision from the People’s Bank of China on Monday. Tuesday, we have UK unemployment data through January as well as a speech from Bank of England Governor Bailey. Wednesday is UK CPI for February and then preliminary March PMIs from Europe, the UK, and US as well as durable goods orders. Thursday, we have the Swiss National Bank meeting and Friday is UK retail sales and Germany IFO data.

So there are a lot of cross forex pairs and I couldn’t possibly cover all of them in my weekly videos. But the EUR/CHF pair is I think one of the more interesting and relevant ones. On the one had the Swiss franc represents a haven asset because it is the currency of Switzerland - a historically neutral country and safe place to keep your money. And the other side is the euro, the currency of the Eurozone, which is very cyclical and tends to do well if global growth is picking up.

We also have the very accommodative monetary policies from both countries. The ECB announced this month it will front-load asset purchases in its PEPP program, creating an extra supply of euros, which puts downward pressure on the euro price. Then we have the SNB, which is intervening directly into currency markets by selling francs and buying euros.

The SNB has two issues to address heading into this week’s meeting. One is how to combat the more aggressive asset purchases by the ECB and two is what to do about rising bond yields in Switzerland. If the ECB is acting to hold down yields in Europe but the SNB does nothing, it will make interest rates in Switzerland relatively more attractive. All else being equal, that would be negative for the EUR/CHF pair. But of course all else is not equal- and the euro could continue to trend higher as investors move out of haven trades in anticipation of higher global growth this year. 

One curveball to look out for would be if the SNB were to implement - or even mention - yield curve control as a policy tool. That would likely be Swiss franc negative and so EUR/CHF positive.

Right thanks everyone, good luck trading this week and make sure to subscribe so you don’t miss the next episode of the week ahead.