The annual Jackson Hole meeting did not break any new grounds. Janet Yellen avoided any reference on monetary policy, while Mario Draghi refrained from commenting on the Euro strength. Nevertheless, it turned out to be an impactful event for the greenback and the common currency both hitting multi-year levels. By remaining silent, the Fed basically retains the prudent stance adopted over the past months, making a hike in December nothing less sure, and further depreciating the dollar. On the other side, the absence of concern on the euro from Draghi also confirms the ECB’s latest hawkish stance. The diverging positions between the Fed and the ECB gives way for a higher euro and a weaker dollar at least until next meeting in September.
The EURCHF followed a similar pattern than the EURUSD, with a strong bullish impulse followed by a consolidation period during August. While the EURUSD broke to new highs following Jackson Hole, EURCHF stalled within its consolidation pattern. There are a few reason that may explain why the franc did not follow through:
- The strong demand for safe haven such as Gold lately may have spurred some interest for the Franc.
- The SNB may have reduced some of its foreign assets, hence buying back the Franc.
- The perception that any monetary tightening by the ECB will be following by the SNB.
We believe these factors are temporary, and as markets turn risk-on again the Euro should outperform the Franc again. Moreover, if indeed the SNB will follow closely what the ECB does, the latter will most definitely be the one to move first. Watch for a break of the short-term bearish trendline above 1.1450, which could lead to a strong upside making our beloved 1.20 floor rate not so unrealistic anymore.
Daily chart EURCHF vs EURUSD (basis 100 on January 1st 2017): The Euro is up nearly 15% compare to the Greenback and 6.5% compared to the Franc