EUR/CHF traded through the 200-day moving average (1.2301) for the first time since November, after finding good buying support here on a number of occasions. Mario Draghi’s comments around a fresh LTRO (long-term refinancing operation) was clearly the catalyst here. The EUR has benefited hugely from a big contraction in the ECB’s balance sheet since mid-2012, so another round of lending cheap liquidity to the banks should be EUR negative here.
The German market fell 0.5% despite Angela Merkel polling strongly in the Sunday election. The process of forming a grand coalition will take some time and we feel the market is keen to find out if the SPD will demand a rise in minimum wage, which in theory could lower the competitiveness of Germany. At 18:00 we get the latest read on German business confidence with the IFO survey due. Expectations are for further improvement.
Spot gold will react not just to commentary from Fed officials this week, but also any data points which are sensitive to higher bond rates. In US trade today we get the Case-Shiller house price index (economists expect a 12.45% increase in July year-on-year); Sandra Pianalto and Esther George also deliver speeches, although we don’t expect them to talk specifically on monetary policy.
In the last few months WTI has been in a range of $112.24 to $102.22 and after pricing out the worst of the Syrian concerns, it is now testing the lower boundaries of this range. It is also worth looking at support at $101.5 (the 38.2% retracement of the April to August rally); a break of this level could go onto test the $100 level.
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