Intraday Market Thoughts

EURCHF Bounces on Swiss CPI, BoC Statement, Ivey Awaited

by Patrik Urban
Dec 6, 2011 13:08

Expectations of EURCHF floor lifting likely to reemerge after Swiss CPI declined again; German factory orders surprise to the upside; Eurozone Q3 GDP confirmed at 0.2% q/q. Market turns to Canadian rate decision, building permits, Canada's Ivey PMI and US IBD TIPP economic optimism index.

Financial markets are recovering losses incurred after yesterday's surprising S&P mass downgrade warning. Riskier assets were first bought when London session started but started to give up their gains. Relative strength winners are EUR, NZD and AUD. Major European equities are higher by 0.3% to 1%.

Deflationary pressures in Switzerland are increasing as CPI declined -0.2% m/m in November and 0.5% y/y from previous -0.1%. The Franc weakened sharply to 1.2416 against the Euro but has since gained some losses back. Stronger deflation is likely to bring back calls from labor unions and other parties for a higher EURCHF floor. However, considering the ongoing Eurozone crisis, previous calls for EURCHF floor at 1.40 seem exaggerated as it would become expensive to defend. Next SNB meeting is on 15th of December.

German factory orders grew solid 5.2% in October, significantly above expectations of +0.9%. September orders were revised lower from -4.3% to -4.6%. Export oriented German economy could benefit in the months ahead from 8.9% growth in foreign orders within the Eurozone and 7.9% rise in orders from the rest of the world. Eurozone Q3 GDP was unrevised at +0.2% q/q and +1.4% y/y.

The NY session starts at 8:30 am ET with Canadian building permits that are seen higher at 2.3% in October from previous -4.9%. The reaction is likely to be muted as traders will wait for BoC rate announcement at 9:00 am ET. The overnight rate is likely to remain at 1%. A forecast compiled by Bloomberg shows that BOC is the only G10 central bank that is expected to raise rates during 2012. Nonetheless, traders will await the statement of the BoC and whether it revises down its economic forecast.

Also from Canada, is the 10:00 am release of the November PMI anticipated to rise to 55.2 in from previous 54.4.

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December IBD TIPP economic optimism index is due also at 10:00 am and should improve to 42.5 from 40.6.


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