EUR/USD Is Range-Bound N-Term, So Buy USD/CHF On Dips - Credit Agricole
The USD has been relatively well supported. Even if this week’s Fed minutes made a bigger case of the central bank considering higher rates as soon as in June, incoming data must support such prospects, especially when considering that the probability of the central bank to act in June remains well below 50%. Nevertheless, as stressed previously we expect rate expectations to remain at least stable in the short-term what should keep USD downside limited from the current levels. As soon as event risk as related to the EU referendum passed, there should be more potential of rising rate expectations to the benefit of the greenback. This is especially true when it comes to pairs such as USD/CHF, which should remain a buy on dips.
Elsewhere, EUR/USD hit another multi-week low yesterday. However, the pair may ultimately remain rather range-bound from here.
First of all the Fed remains data dependent and improving us data will fuel global growth expectations at the same time. This is especially true as any tightening of monetary policy will be gradual. When it comes to the Eurozone, inflation expectations appear to have become more sensitive to global growth prospects. Accordingly, improving global growth expectations may just lower the risk of the ECB considering additional stimulus measures anytime soon. In any case the central bank needs more time to evaluate the latest policy steps’ impact on the economy. As a result to the above outlined conditions one should anticipate only limited room of further diverging Fed-ECB monetary policy expectations in the short-term, at least until event risk, as stressed above, passed.
As a result to the above outlined conditions one may indeed rather consider buying dips in pairs such as USD/CHF. First of all the franc is keeping monetary conditions too tight, what should make a case of the SNB keeping the current policy mix intact (negative interest rates, FX intervention). The ECB reportedly became less dependent on the currency as when it comes to the setting of monetary policy.