EUR: European rates are going higher
EUR/USD looks to be benefiting from some portfolio re-allocation since yesterday's rise was not backed up by any noticeable change in short-dated EUR:USD rate differentials. Support levels roughly held this week and the bias looks to be to 1.1010/30 above which the highs near 1.1100 beckon. Any softer US data should certainly help here. On the eurozone side, look out for June consumer confidence and another batch of European Central Bank speakers. The market looks comfortable in pricing two further 25bp hikes by year-end.
Elsewhere, the Swiss National Bank (SNB) meets to set rates today. The majority of economists are going for a 25bp hike, but a sizable minority look for 50bp - primarily since the SNB only meets four times per year. Recent SNB rhetoric has remained hawkish despite core inflation dropping below 2% year-on-year. Last September, we estimated that the SNB wanted to engineer 5% nominal appreciation per year to keep the real CHF stable. That is roughly what has happened. Where we were wrong is that it has come more through USD/CHF than EUR/CHF. Expect a hawkish SNB today to keep USD/CHF offered - targeting May's 0.8820 low.
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