‘It’s A Sitting Duck’: Swiss Franc Plunge Continues, Bund Yields Soar, On Hot German Data

Ok, well if you were in the camp that was looking for some sign that the relentless rally in the euro was going to fade, you didn’t need this (out at 3 a.m. EST):

  • GERMANY’S SAXONY JULY CONSUMER PRICES RISE 1.7% IN YEAR

Colloquially, that suggested “the Germans were comin’ in hot.”

There were “no major surprises from the July Saxony inflation data on a y/y basis, although at the margin the beat in the m/m reading is giving the euro a slight lift,” Bloomberg’s Richard Jones wrote, after the number hit.

Yes, “no major surprises,” but keep in mind that any kind of beat on inflation in the current environment for the euro is just fuel on the fire. So there needn’t be any “major surprises” – small beats will do just fine.

“Keep an eye on the bigger states throughout the next few hours for a read on the national data later,” Jones went on to add.

Well, “later” eventually came (that’s what “later” tends to do), and here’s the data:

  • GERMANY’S BAVARIA JULY CONSUMER PRICES RISE 0.4% IN MONTH
  • GERMAN BAVARIA JULY CONSUMER PRICES RISE 1.6% IN YEAR
  • GERMANY’S HESSE JULY CONSUMER PRICES RISE 0.4% IN MONTH
  • GERMANY’S BRANDENBURG JULY CONSUMER PRICES RISE 0.4% IN MONTH
  • GERMANY’S BRANDENBURG JULY CONSUMER PRICES RISE 1.4% IN YEAR
  • GERMANY’S NRW JULY CONSUMER PRICES RISE 1.8% IN YEAR
  • GERMANY’S NRW JULY CONSUMER PRICES RISE 0.4% IN MONTH

And then here’s the national data:

  • German July Prelim. Harmonized CPI +1.5% Y/y; Est. +1.4% Y/y
  • Germany’s Federal Statistics Office reports July prelim national CPI +1.7% y/y; est. +1.5% y/y.
  • Harmonized CPI forecast range 1.1% to 1.5% y/y from 30 economists
  • German July prelim harmonized prices +0.4% m/m; est. +0.3% m/m
  • German July prelim national prices +0.4% m/m; est. +0.2% m/m

Needless to say, that was all the excuse the euro needed to extend the rally against the franc. This follows an episode that unfolded early in Asia, where Japanese banks were said to have ‘inadvertently’ triggered stops and accelerated the EURCHF rally that had already seen the euro blow past 1.12 for the first time since the SNB abandoned the floor (more here).

Here’s what happened after the German CPI prints:

EURCHF

Have a look at where we are versus when the SNB gave up on the floor:

EURCHF2

The Swiss franc is a sitting duck versus the euro,” Bloomberg’s, Anchalee Worrachate wrote this morning, after the German CPI data. Here’s a bit more color:

The SNB’s ever-dovish stance on the currency and Swiss economic stagnation versus the euro area’s improved economic outlook (not to mention, less political uncertainty) probably helped push EUR/CHF to the highest level since January 2015 — when the central bank removed its franc cap. The pair’s advance above its 200-week moving average for the first time since pre-GFC in 2008 offers an excuse to liquidate long CHF positions in a summer-thinned market. Some market participants I spoke to have also noted a desire among Swiss investors to seek higher yielding assets abroad, adding to the downside pressure on the currency. All this makes the CHF a bit of a sitting duck against the euro, and the SNB is probably okay with that.

Yes, that is indeed “probably ok” with the SNB considering they have repeatedly said the franc is “significantly” overvalued.

And while EURUSD hasn’t quite retraced to its post-dovish-Fed highs, the overall picture looks like this:

EURUSD

Meanwhile, bunds predictably fell following the upbeat read on the German economy (which has gotten all kinds of encouraging data this week, even as the earnings picture has been mixed).

In fact, yields are now up sharply:

Bunds

Simply put, this is just further evidence that the “policy divergence” theme that was supposed to underpin the dollar versus the euro is falling apart – and quickly.

Oh, and in case you think all of this is somehow not important, consider this headline just out from Bloomberg:

  • German CPI Healthier Than U.S. Senate Vote

**********

Advertisements

Speak On It