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The focus to soon shift on ECB, March 10

USDCHF
USDCHF Day

Global equities are on track for their second weekly gain. The SP 500 broke above the important resistance of 1950 which opens the way for further upside towards 2000. European equities will probably extend the move today, with Germany 30 potentially testing and breaking the 9600 level.

Over the coming days the focus will slowly shift to the ECB on the 10th of March. Considering the high expectations and the subsequent disappointment of last year, investors might be more cautious this time. Yet, there is a fair chance Draghi will not want to deceive the market twice in a row.

Latest quotes from ECB members clearly point to an intervention in March. With European banks seeing their cost of debt rising fast, and the ECB wanting to stimulate credit, the latter will most likely want to back its financial system.

Best way to trade it:

  1. Short EUR/USD – expectations of a rate hike by the Fed this year have gone down dramatically, leaving little room for disappointment on the USD.
  2. Long USD/CHF – Swiss CPI, consumer spending, employment all turned south in 2015. This confirmed how sensitive the Swiss economy is to its exchange rate. The SNB will most probably need to react, should the ECB ease further.
  3. Short EUR vs High Yield currencies such as the AUD or NZD. Stimulus by the ECB should boost risk appetite (short term), which is good for high yielding currencies
  4. Long European equities (with caution) – fundamentally bearish, equities could benefit from short-term optimism following the ECB. However, as mentioned several times before we do not believe risk appetite is sustainable over the long-term due to the many risk events (RMB devaluation, Brexit, energy sector bankruptcies, coco bonds, US election, bank balance sheets etc…)

Despite the bullish move last night on US equities, and Asia, the USDCHF was fairly muted. Expect the pair to move towards parity and higher in the fairly short term. Entry 0.9900, Stop 0.9790, 1.05 

 

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