Danthine Stirs EURCHF
EURCHF briefly returned to the spotlight after the SNB’s Danthine suggested that negative rates up to 50bp may not be harmful, referencing the policy of the Riksbank in 2009. His rhetoric remained firm otherwise and said that the SNB will continue to enforce the CHF cap with utmost determination. EURCHF quickly ran out of steam however, as the euro pushed lower following a cautiously optimistic start where periphery spreads tightened. The EU Commission clarified on yesterdays comments and said direct recapitalisation of banks through the Eurozone’s permanent bailout fund seems unlikely. While they vaguely suggested it may happen yesterday, they are simply asserting that the rules do not allow such a policy currently. Elsewhere, EURNOK fell towards 7.50 after some positive data releases. Seasonally adjusted retail sales volume excluding sales of motor vehicles came in at -0.2% m/m vs consensus estimates of -1.5%. Norges Bank also announced it is to sell NOK350 mn daily for the oil fund in June, unchanged from the May amount. With a revised non-oil budget deficit, it had been expected that they might increase their FX purchases, but in similar fashion to previous years, they will likely stagger them to later in the year. The latest batch of Australian economic data overnight confirmed that non-mining sectors of the economy continue to lose momentum. As a result, our Australia economics team now thinks the RBA will lower the cash rate by 25 bp on Tuesday, and are still looking for a total of 50 bp of easing by August. The euro meanwhile managed to stabilize – it seems investors are now questioning the merits of holding on to a bearish directional view over the next 48 hours in the face of unpredictable month-end flows today and the payrolls report on Friday. EURUSD risks would still appear to be skewed to the downside in our view given the concept of Eurozone bonds is still facing stiff resistance from Germany and the Netherlands; and the political and practical hurdles to any euro-wide bank recapitalisation scheme look significant. Indeed, no material policy decisions seem likely ahead of the Greek election on June 17, portending more nervous trading in the interim. The Greek election itself is still too close to call, but the resilient public support for SYRIZA should continue to weigh on the euro. Of the three polls released on Wednesday, one showed SYRIZA in the lead over the New Democracy (30.0% vs 26.5%), another showed a dead heat (at 24.5%), and the third put the New Democracy on top, albeit by a slim margin (23.4% vs 22.1%). The yen continues to sport a firm profile, with Deputy Governor Yamaguchi’s claim that the domestic economy is in better shape than expected further dampening expectations of bolder BoJ action. Japan’s Vice Finance Minister Nakao served reminder of the intervention threat, reinforcing our view that yen bulls will still have more room to run on the crosses than USDJPY.
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UBS Investment Bank