Euro, Swissy Weakens As Market Fluctuates, Risk-On Rally Resumes

For the time being, the dollar is volatile as selling shifts to the Swiss Franc, Euro, and Yen. Also with the rest of the day’s economic calendar being quiet, forex markets are poised to closely track risk markets.

Forex markets fluctuated violently last week, with a lot of noise but little substance. On Friday, US rates increased modestly, lifting the dollar index 0.13 percent higher to 92.64, where it remains in Asia. This week, a noise level of 92.30 to 93.00 should suffice.

With the support of a broad-based recovery in Euro indexes and US futures, commodity currencies surged back to life as the US session began. The Canadian dollar has also risen as the WTI oil price has reclaimed the 70 handles. 

In her speech, ECB Executive Board member Isabelle Schnabel said that inflation in the eurozone “is likely to decrease markedly next year.” She warned that “a premature tightening of monetary policy in response to a temporary rise in inflation will stifle the recovery and cause the greatest damage to those already suffering from the current surge in inflation.”

On Swiss Franc, SNB Vice President Fritz Zurbrugg said in an interview with Sonntagszeitung over the weekend: “At the moment we need negative interest rates due to the global situation.” He warned: “If we raised interest rates now, the franc would strengthen significantly, economic growth would slow down, and unemployment would increase.” He also noted that the rise in inflation in Switzerland is “temporary”. In the medium term, “we expect it to remain low,” he said.

President Thomas Jordan remains on leave for health reasons and a return date has yet to be set. Zurbregg said finding Jordan’s successor was “not a topic.” “Thomas Jordan will take office again.”

Euro Weakens As Dollar Rebounds

Today’s session sees the dollar continue to rise, with trades typically strong. Weakness is especially noticeable in the Australian and European currencies, which both become soft in cross markets. Overall risk sentiment is somewhat negative, with Hong Kong stocks particularly hard hit, but the Nikkei remains sturdy.

The economic calendar is quiet today, thus currency fluctuations will most likely follow broader market swings. However, inflation data from the United States, Canada, and the United Kingdom might boost volatility later this week.

Technically, the EUR/USD break of 1.1792 support indicates that the rebound from 1.1663 has ended after 1.1907 structural resistance was rejected. We’ll be watching to see if the trend is more of a release of Dollar strength, Euro weakness, or both. If the EUR/JPY breaks through the 129.57 support level, it will fall even further to the 127.91 low. Even if sideways trading continues, the USD/JPY may try to reclaim the 110.79 resistance level. We’ll keep a watch on how the three of them interact.