The euro was stronger across the board as a combination of strong retail sales numbers and SNB intervention to ease the CHF has helped boost the EUR.
A recovery was seen in the euro this morning after strong retail sales of 0.9% on expectations of 0.5%. The May numbers were revised lower to -1.3% from -1.1% but the contraction failed to overshadow the positive headline number. Pressure remains in the euro zone with Italian and Spanish CDS trading at inflated levels along with increased yields in the nations’ 10-year bonds trading at 6.28% a 6.16% respectively. However yields have fallen from these highs since the SNB intervention. Bond vigilantes will likely continue to prey on Italy and Spain as the EU summit from July 21st has essentially failed restore investor confidence in the two nations’ sovereign debt. This will likely continue to weigh on the euro intermittently but at present dollar weakness looks to continue. EUR/USD resistance is found at 1.4440 with support at 1.4280 and 1.4120.
The move to weaken the CHF by the Swiss National Bank (SNB) has provided a shot of adrenaline to deflated markets after yesterday’s equity selling. The SNB cut its Libor target to 0.00-0.25% from 0.00-0.75%. Previous 3-month rates were already below this target so the announcement may be more symbolic. Additional measures were taken to weaken the CHF by increasing liquidity supplies to Swiss banks. Nevertheless the impact was felt in the forex trading markets with the EUR/CHF and the USD/CHF rising from their lows. But given the risk off environment the pause in the appreciation of the CHF may only prove to be temporary as there is currently a lack of safe-have assets available. The euro is facing a sovereign debt crisis while the US economy continues to underperform. This leaves the Japanese yen as a possible currency but the risk is increasing for the Japanese Ministry of Finance to step in to ease the JPY. Thus the relief the CHF has been dealt today may prove to be temporary until the next flare up in global risk metrics.
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