The Swiss National Bank held its monetary policy meeting yesterday and affirmed its foreign exchange price floor relative to the Euro at 1.20. The general tone of its policy statement was positive, with higher forecasts in GDP growth and lower forecasts for consumer inflation levels. The EUR/CHF saw an increase in volatility leading up the the meeting, as some of the market was anticipating the possibility that the Swiss National Bank would take this a step further and choose to raise its price floor even further, but when this did not materialize, prices dropped back below the 1.21 level before steadying.
Risk sentiment stabilized overnight, with most equity markets finishing at unchanged or positive levels. US bond yields continue to push higher after the latest FOMC meeting, as markets reduce expectations for additional rounds of quantitative easing stimulus. Macro data today will come with the jobless claims and Producer Price Index (PPI) data, and Treasury Inflows (TIC) figures out during the New York session.
In Europe, employment data was released, coming in at -0.2 percent for the 4th quarter, with labor costs rising 2.8 percent on a yearly basis. But the bigger story was in the UK, where Fitch revised the ratings outlook to “negative,” which matches the previous downgrade from Moody’s. The credit rating itself, however, was reaffirmed at “AAA.” The FTSE 100 was moderately lower after the story was released, retracing this week’s gains after posting new monthly highs.
In Norway, the central bank (Norges Bank) surprised markets by lowering its base interest rates to 1.5 percent, while the consensus estimate was looking for an unchanged result. In addition to this, the accompanying policy statement had a more markedly dovish tone than what had been seen previously, suggesting that the base interest rate will remain under 2 percent throughout the first half of this year. The bank went on to say that any major rise in the Norwegian Krone would likely result in further cuts in the base interest rate. The newly cautious outlook from the bank looks to be coming from a need to keep export companies supported in the face of slowing regional macro data.
Technical Analysis:
The EUR/CHF finally saw some volatility in the previous sessions as prices broke violently from its medium term range, and managed to test levels above 1.21. The high on the session was 1.2145, and this is now key resistance going forward. The retracement was also extreme, in terms of volatility, with prices coming back to the 61.8% Fib retracement before moving higher. Longer term, the bias is bullish, with only a break back below 1.20 reversing this outlook.
The FTSE 100 continues its longer term uptrend and continues to post new highs in the psychologically significant 6000 region. Moving averages are pointed upward and with indicator readings in positive territory, the expectation is for a test of longer term resistance at 6080 before prices head lower. Buying dips is still a viable strategy, with the first opportunity for long positions coming in at 5720.
