European Central Bank President Christine Lagarde stuck to a strictly neutral tone in her EU Parliament speech yesterday. It’s admittedly hard to ask for anything different than rigorous data dependency at a time where uncertainty on the tariff impact is paired with uncertainty about fiscal stimulus implications. In other words, don’t expect any ECB guidance before data has already set the direction for the euro.
For the time being, the unwinding of the EUR/USD rally is matching our call, even if perhaps slightly earlier than we would have thought. Again, noise risk is elevated, but our preference in terms of multi-week directions is still down for the pair. A 2-year swap rate differential around the current -150bp would still be consistent with EUR/USD at 1.07.
We also have a light calendar today in the eurozone and no ECB speakers. The next major support for EUR/USD is probably the 1.0725 200-day moving average, which is now the key benchmark for a return to a bullish mood on the greenback.
Elsewhere in Europe, we saw the Riksbank keeping rates on hold and the Swiss National Bank cutting another 25bp. On the former, markets had already anticipated that rates had reached the bottom, and the krona was only marginally moved. EUR/SEK remains cheap according to our short-term fair value model and we continue to favour a rebound to the 11.10-11.20 mark over the coming weeks.
In Switzerland, another SNB cut brought the policy rate to 0.25%. The accompanying statement left all options open, but our economist notes how, for the first time in a long time, the SNB hasn’t had to revise its inflation projections lower. We expect a hold in June and lean towards calling for the end of the easing cycle altogether. As we had anticipated, the Swiss franc dropped on the announcement, but EUR/CHF does not seem to have much bullish steam. Any further rallies should anyway fall short of breaking above 0.970 and our bias for the second quarter remains a return to 0.950.
Francesco Pesole
