The SNB policy pivot has changed up the FX landscape and the franc is arguably the hot pick (at least mine) in the major currencies space at the moment. The market was caught off guard by the Swiss central bank and now we are having to price in potentially more rate hikes and also the fact that policymakers now no longer see the franc as being „highly valued“.

What a time to be alive.

EUR/CHF is down another 0.8% on the day to 1.0114 and USD/CHF down 0.5% to 0.9620 at the moment. Meanwhile, CHF/JPY is on a runaway train as it now nears 140.00 on the day.

• Parity beckons for EUR/CHF
• It’s looking line sunny skies for CHF/JPY

This article was written by Justin Low at www.forexlive.com.

This will be in observance of Juneteenth, so that could play into some positioning or profit-taking to wrap up the selling pressure this week. After the central bank bonanza this week, markets in general may look for a bit of a breather but the bigger picture remains tough for equities and the franc is arguably now the hot pick (at least mine) in the major currencies space.

This article was written by Justin Low at www.forexlive.com.

It has been an awful week for equities as the central bank bonanza brought about jitters all across markets. A quick repricing towards a 75 bps rate hike for the Fed kicked things off before we got a surprise policy pivot by the SNB.

The only relief is that the BOJ decided to play its cards straight or else all hell would break loose ahead of the weekend. Here’s a snapshot of US futures at the moment:

• S&P 500 futures +0.8%
• Nasdaq futures +1.1%
• Dow futures +0.6%

It isn’t much when you put into context the sharp selloff from yesterday but it is a bit of a respite after an extremely tough week. The weekly charts are the ones telling the story for US indices at the moment:

The S&P 500 is breaking below the 38.2 Fib retracement level support and is headed towards a look at the 200-week moving average (blue line) at 3,502. That sits close to the 50.0 Fib retracement level at 3,505 and will be a key support region to watch for any potential reprieve as the bears sharpen their claws.

Meanwhile, the Nasdaq is threatening a break below its own 200-week moving average (blue line) at 10,795 and that will keep sellers poised to extend the downside momentum towards the next leg. The 61.8 Fib retracement level at 10,291 might offer some light support before the 10,000 mark comes into play.

This article was written by Justin Low at www.forexlive.com.

• I don’t think we are behind the curve, we are balancing risks

So, he’s suggesting that the central bank is not behind the curve on inflation and aren’t able to go with bigger rate hikes in case of an economic backlash, yet still wants markets to guess about a 50 bps rate hike? It sounds like all they want is to have their cake and eat it too. That’s awfully greedy when it comes to policy guidance at this point in time.

This article was written by Justin Low at www.forexlive.com.

The BOE may be sticking with a more gradual approach for now but money market bets on a more aggressive push by the central bank are not letting up just yet. With just four more policy meetings left for the year, traders are ramping up bets that the BOE will hike to 3% by year-end.

To put it in simpler terms, that’s at least seven 25 bps rate hikes. That alludes to the fact that traders are expecting a more aggressive BOE in September and October i.e. at least 50 bps rate hikes in both meetings.

The pricing is sparking a bit of a turnaround in the pound, with cable recovering back to test its 100-hour moving average (red line) again at 1.2160 on the day.

As much as it looks like the BOE may push through in its battle against inflation, they haven’t quite offered up much in terms of their pain threshold when tightening policy into a likely recession. I think that predicament could see market pricing backtrack in the months ahead as UK economic data worsens. In turn, that will add more uncertainty and downside potential for the pound.

This article was written by Justin Low at www.forexlive.com.

• ECB policymakers worried that market stress may hinder monetary policy
• Want new instrument to be ready for July meeting
• Likely to offset bond-buying with the new instrument

The report by Bloomberg adds that the tool would probably involve „selling other securities“ so purchases do not clash with their efforts to tighten policy. Essentially, this is QE but not exactly QE in some form of convoluted way.

However, just be wary that even if the ECB ‚wants‘ the new instrument to be ready in the next few weeks, it doesn’t mean that it will happen. I would expect policymakers to go through a series of alternatives and then iron out the nooks and crannies before finalising anything. And summer time in Europe could make it harder to manage timelines.

EUR

This article was written by Justin Low at www.forexlive.com.

That has seen cable fall to a low of 1.2050 after having earlier risen in the run up to the decision as it seemed that traders were getting a tiny bit excited that the BOE may perhaps be more aggressive.

The push higher earlier stalled around the 100-hour moving average and sellers were quick to send cable back down in the aftermath of the BOE decision, with price falling from 1.2150 to 1.2050 levels at the moment.

The BOE remains in a rather unenviable spot so you can’t really blame them for going with just a 25 bps rate hike. A 50 bps rate hike on paper may look like they are being more serious to combat inflation but at this point with inflation nearing double-digits, it hardly matters. Instead, it would just invite more recession risks as mentioned earlier here.

The latest policy step by the BOE does little to change the overall outlook that markets are still likely to be less certain about the central bank’s appetite to keep hiking as the economy starts to run into the ground. The UK remains the lead runner in the recession race and that factor alone is enough to keep pressure on the quid in the bigger picture of things.

This article was written by Justin Low at www.forexlive.com.

• Prior 1.00%
• Bank rate vote 9-0* vs 9-0 expected (*Haskel, Mann, Saunders voted for a 50 bps rate hike instead)

• CPI inflation is expected to be over 9% during the next few months
• CPI inflation to rise to slightly above 11% in October
• BOE will take the actions necessary to return inflation to the 2% target sustainably in the medium-term
• The scale, pace and timing of any further rate hikes will reflect the assessment of the economic outlook and inflationary pressures
• BOE will be particularly alert to indications of more persistent inflationary pressures
• BOE will act forcefully in response, if necessary
• Full statement

The pound has fallen on the decision with cable slipping from 1.2150 to 1.2060 as the BOE delivered a rather straightforward decision. As mentioned earlier here, the risks either way are likely to point towards the downside for the pound.

The central bank is sticking with a more gradual approach in line with economic considerations but it won’t do much to alleviate the narrative that inflation is set to hit double-digits in the UK and that the cost-of-living crisis is set to worsen in the months ahead.

This article was written by Justin Low at www.forexlive.com.

The consensus is for the BOE to hike rates by 25 bps today, given considerations to recent economic headwinds. However, after the more aggressive Fed yesterday and SNB surprise earlier today, I reckon it is inviting some bets for a bigger rate increase by the BOE later.

Cable fell to a low of 1.2058 earlier in the session but has picked itself up to 1.2165 currently and running into a test of the 100-hour moving average (red line) at 1.2163. There is also still near-term resistance closer to 1.2200 to limit gains for the time being.

As much as a surprise 50 bps rate hike by the BOE may see a knee-jerk reaction higher in the pound, I would say the play is to fade that as ultimately such a move would just invite sooner recession risks for the UK. More on that here.

This article was written by Justin Low at www.forexlive.com.

• Prior -6.5%
• Market index 307.4 vs 288.4 prior
• Purchase index 225.0 vs 208.2 prior
• Refinancing index 735.5 vs 709.5 prior
• 30-year mortgage rate 5.65% vs 5.40% prior

Despite a jump in the average mortgage rate to its highest since 2008, more homebuyers were in the market in the past week with both purchases and refinancing activity ticking higher. I reckon that could be a rush before the Fed tightens policy further this week. In any case, purchase applications are down more than 15% from last year so that tells the story better.

This article was written by Justin Low at www.forexlive.com.