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European Open: Can Swiss inflation turn up the heat for SNB? (USD/JPY, CHF/JPY)

Article By: ,  Market Analyst
February 13, 2023 5:53 AM

Asian Indices:

  • Australia's ASX 200 index fell by -27.5 points (-0.37%) and currently trades at 7,406.20
  • Japan's Nikkei 225 index has fallen by -282.39 points (-1.02%) and currently trades at 27,388.59
  • Hong Kong's Hang Seng index has fallen by -99.72 points (-0.47%) and currently trades at 21,090.70
  • China's A50 Index has risen by 133.24 points (0.98%) and currently trades at 13,722.49

 

UK and Europe:

  • UK's FTSE 100 futures are currently up 5.5 points (0.07%), the cash market is currently estimated to open at 7,887.95
  • Euro STOXX 50 futures are currently down -6 points (-0.14%), the cash market is currently estimated to open at 4,191.94
  • Germany's DAX futures are currently down -30 points (-0.2%), the cash market is currently estimated to open at 15,277.98

 

US Futures:

  • DJI futures are currently down -114 points (-0.34%)
  • S&P 500 futures are currently down -58.5 points (-0.47%)
  • Nasdaq 100 futures are currently down -17.25 points (-0.42%)

 

 

Swiss inflation in focus before the open:

Swiss inflation is scheduled for 07:00 GMT, and it is expected to have risen 0.4% m/m (-0.2% previously) and 2.9% y/y (2.8% previously). Clearly this is above the SNB’s 2% maximum target, but inflation appears to have beaked at 3.5% in August and disinflation has begun. The SNB hiked by 50bp in December to take their interest rate to 1%, and earlier this month the Chairman said the central bank cannot rule out raising rates further and that price stability is absolutely essential. He also stated inflation risks remain and they expect prices to remain elevated.

Their next meeting is not until March 23rd, which leaves two more inflation reports to mull over including today’s. And that means a hotter-than-expected inflation print likely sees increased odds of another 25 or 50bp hike in March. Currently the 3-month OIS sits at 1.15% to suggest markets currently do not favour a hike so soon, but hot inflation could change all of that and support the Swiss franc.

 

Eurogroup meetings, inflation expectations and Fed’s Bowman also on tap

The Fed’s William Bowman deliver a speech at 13:00 titled “Independence, Predictability, and Tailoring in Banking Supervision and Regulation”.

The NY Fed release US inflation expectations at 16:00, which currently sit at 5% for 1-year, 3% for the 3-year and 2.4% for the 5-year. It will be interesting to see if the 1-year ticks higher, like we saw on the University of Michigan survey on Friday. According to the University of Michigan survey, 1-year expectations have risen to 4.2% from 3.9% previously.

Eurogroup meetings also take place today from 09:30 GMT. Key agendas include recent developments in the energy markets, developments and challenges ahead of the labour markets, and macroeconomic and financial developments, and policy coordination in the euro area.

 

CHF/JPY daily chart:

The yen began to correct against its sustained weakness in September, when the MOF (Ministry of Finance) intervened in the currency markets to strengthen the yen. That helped CHF/JPY spent the next three or so months pull back from its highs and retrace against its bullish trend. However, the end of the correction may have been seen around 137, as momentum turned higher at a Fibonacci cluster which includes a long-term 38.2% retracement and 161.8% projection level.

Since then, prices have moved higher, built a level of support just above 140 and closed above the 200-day EMA. We also note that Friday’s low respected the 200-day EMA as support. So we’re now on guard for a potential bullish breakout above 143.60, which would also clear the 100-day EMA. A strong inflation report and further hawkish commentary from the SNB could help with such a scenario (as would confirmation of a dovish BOJ governor to replace Kuroda). A break below 140 invalidates the bullish bias.

 

USD/JPY daily chart:

Hawkish Fed members have helped to push US yields and the dollar higher. We saw some volatility across yen pairs on Friday after the favoured candidate to success Kuroda (and a dove) pulled out of the nomination, and Japan’s PM backed a more hawk candidate. If a hawk takes the helm, the yen will likely strengthen on hopes that the BOJ will abandon YCC. But until that happens, the BOJ remain dovish – and USD/JPY continues to appear oversold to my eyes.

A bullish pinbar formed on Friday after a failed attempt to break below the 130.67 high, and we’re now looking for bullish momentum to return and taker the yen towards the 200-day EMA around 133.75.

 

Economic events up next (Times in GMT)

 

 

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