Sample Category Title

Markets

“Whatever it takes.” These words by former ECB president Draghi in July 2012 are widely considered the turnaround in the sovereign debt crisis that had the euro (area) staring into the abyss. Germany’s upcoming chancellor Merz used them again to announce a similar seismic shift on a fiscal level. With a €500bn infrastructure investment fund and essentially unlimited defense spending (exempted from the debt brake) the country addresses two of the most pressing challenges. As a welcome side-effect it could give a cyclical boost to the ailing economy in general. The way Germany’s upcoming government coalition partners struck the agreement – in the dying days of parliament to avoid blocking minorities in the new one – only adds to its already historical status. For it to be approved with the necessary two-thirds majority, the CDU/CSU & SPD still need the support of the Greens, though. In another sign of how the tides have turned, Germany is now urging the EU to ease the fiscal rules quickly. A temporary suspension of the 3% deficit limit rule was one of the options presented by EC president von der Leyen yesterday ahead of tomorrow’s special EU defense summit. Germany’s big and bold move triggers a “Make Europe Great Again” wave of optimism. Stocks in the region add 2.5% (EuroStoxx50) with Germany (+3.3%) outperforming lead by defense, infrastructure and cars. German yields sear up to 25 bps (!). The 30-yr topped 3% again and its 10-yr yield moves beyond the 2024 high. Bund vs swap (10-yr) spread moved to its highest ever (14 bps). The common currency surges for a third day straight, taking out the EUR/USD 1.0533 and 1.0677 resistance levels in the process. Next up is 1.0804.

We see opposite dynamics playing out in the US again. The stagflationary genie is out of the bottle, set free by ruthless DOGE department and a raft of tariff announcements, regardless the chance of being watered down in the Canadian and Mexican case – as Commerce Secretary Lutnick suggested. US Treasuries greatly outperformed Bunds with much weaker than expected ADP job growth adding to the spread. Coming in at about half of the 140k expected, the US 2-yr yield fell 8 bps to intraday lows. The long end slips 2.5-4.5 bps. The dollar trades at the backfoot, against the euro in the first place, but against all global peers in a broader perspective. DXY (trade-weighted) breaks below 105.17 support (50% retracement on the Sep-Jan rally) to slip to a four-month low. The next reference from the current 104.7 is 103.94/104.

The US services ISM, released when wrapping up this report, came in better than expected. The headline figure in February improved from 52.8 to 53.5 with details printing stronger as well. New orders rose to 52.2 and employment to 53.9. Prices paid ticked higher to 62.6. US yields and the dollar pared some of their previous losses but remain down for the day.

News & Views

Czech inflation rose by 0.2% M/M, matching consensus. On an annual basis, inflation moderated from 2.8% to 2.7%. Inflation remains slightly above the CNB's staff estimate (2.6%) and will not see significant changes in March. There may be a more visible slowdown due to a negative base effect in April. The CNB should have this number at its May meeting with a new staff forecast. Recall that we expect a another rate cut at that meeting. Core CPI, excluding energy, food, alcohol and tobacco rose by 0.6% M/M (3.2% Y/Y from 3.1%). Details also showed services prices rising by 0.7% M/M and stabilizing at 4.7% Y/Y with goods prices falling by 0.2% M/M to be up 1.4% Y/Y (from 1.7%). The Czech koruna obviously didn’t respond to the data. EUR-strength is pushing EUR/CZK away from the 25 support zone.

Swiss inflation accelerated to 0.6% M/M in February to be up 0.3% Y/Y (from 0.4% in January). The monthly increase is due to several factors including rising prices for housing rentals and for air transport. International package holidays also recorded a price increase. In contrast, prices for hotels decreased, as did those for berries and second-hand cars. Details showed overall goods prices rising by 0.2% M/M to be down 1.8% Y/Y while services inflation increased by 0.8% M/M to be 1.7% higher Y/Y. Euro strength is the key driver in EUR/CHF as well with the pair taking out the previous YtD high at 0.9518 today.

The Swiss franc has rallied for a third straight trading day. In the North American session, USD/CHF is trading at 0.8884, down 0.12% on the day. The Swiss franc has jumped 1.6% this week and earlier strengthened to 0.8856, its best level this year.

Switzerland’s inflation falls to lowest in nearly four years

Swiss inflation has been falling and the trend continued in February. Headline CPI rose 0.3% y/y, down from 0.4% in January and above the market estimate of 0.2%. This was the lowest level since April 2021. The decrease was driven by lower prices for food and energy. Core inflation, which removes volatile items such as food and energy, remained steady at 0.9% y/y.

The inflation report confirms the trend of falling inflation and has likely cemented a rate cut when the Swiss National Bank meets on March 20. The markets have priced in a 25 basis point rate cut at around 90%. The SNB chopped rates in December by 50 basis points, bringing the cash rate to 0.5%.

Governor Martin Schlegel has said that the central bank will lower rates into negative territory if needed. The SNB maintained rates in negative territory until 2022, when a coordinated move by the major central banks boosted Swiss rates as high as 1.75%.

In addition to falling inflation, there are other factors supp0rting the case for a rate cut at this month’s meeting. The Swiss economy slowed to 0.2% q/q in the fourth quarter of 2024, down from 0.4% in Q3, its weakest expansion since Q2 2023. As well, a rate cut could cool the rising Swiss franc. The SNB doesn’t want the Swiss franc to continue rising as that hurts Swiss exports.

The US releases ISM Services PMI later today. The services sector continues to expand and is carrrying the US economy on its back, as manufacturing has been in a recession. The market estimate f0r the services PMI stands at 52.6 for February, down slightly from 52.8 in January.

USD/CHF Technical

• There is resistance at 0.8916 and 0.8960
• 0.8851 and 0.8807 are providing support

US ISM Services PMI climbed to 53.5 in February, up from 52.8 in January and exceeding expectations of 53.0. The data signaled continued expansion in the services sector, with growth seen across key subcomponents.

Business activity showed only a marginal decline from 54.5 to 54.4. New orders ticked up from 51.3 to 52.2, while employment rose from 52.3 to 53.9. Price pressures remain a concern, as the prices subindex jumped from 60.4 to 62.6, reinforcing worries about inflation persistence.

While the services sector continues to grow, ISM noted that businesses remain anxious over the impact of tariffs, while some respondents cited federal budget reductions as negatively affecting their outlook.

Despite these uncertainties, ISM pointed out that February marked the third consecutive month where all four major subindexes—business activity, new orders, employment, and supplier deliveries—remained in expansion territory, a first since May 2022.

The report also indicated that the current level of services activity corresponds to a 1.6% increase in annualized GDP.

Full ISM services release here.

Daily Pivots: (S1) 0.9381; (P) 0.9417; (R1) 0.9489; More....

EUR/CHF's strong break of 0.9516 resistance confirms resumption of whole rally from 0.9204. Intraday bias is back on the upside for 100% projection of 0.8204 to 0.9516 from 0.9331 at 0.9643. On the downside, below 0.9502 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, sustained trading above 38.2% retracement of 0.9928 to 0.9204 at 0.9481 should now confirm that whole fall from 0.9928 (2024 high) has completed at 0.9204. Further rally should then be seen back to 61.8% retracement at 0.9651 and possibly further this retest 0.9928 key structural resistance (2024 high).

Daily Pivots: (S1) 0.8268; (P) 0.8287; (R1) 0.8323; More...

Current upside acceleration affirms the case that corrective fall from 0.8472 has completed at 0.8239 already. Intraday bias in EUR/GBP remains on the upside for 61.8% retracement of 0.8472 to 0.8239 at 0.8383. Sustained break there will target 0.8472 resistance next. On the downside, below 0.8321 minor support will turn intraday bias neutral first.

In the bigger picture, EUR/GBP is still bounded inside medium term falling channel. While rebound from 0.8221 might extend higher, it could still develop into a corrective pattern. Overall outlook will be neutral at best, at least until decisive break of channel resistance (now at 0.8511).

Daily Pivots: (S1) 148.64; (P) 149.26; (R1) 150.43; More...

Intraday bias remains neutral at this point. With 151.29 resistance intact, fall from 158.86 is still expected to continue as the third leg of the corrective pattern from 171.96 high. Below 148.08 will target 61.8% retracement of 139.57 to 158.86 at 146.32. Sustained break there will pave the way back to 139.57 low. However, break of 151.29 will turn bias back to the upside for stronger recovery first.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8851; (P) 0.8916; (R1) 0.8960; More…

Intraday bias in USD/CHF remains on the downside, and focus stays on 38.2% retracement of 0.8374 to 0.9200 at 0.8884. Strong rebound from current level, followed by break of 0.9035 resistance, will retain near term bullishness, and bring retest of 0.9200/23 resistance zone. However, firm break of 0.8444 will confirm rejection by 0.9223 resistance and turn near term outlook bearish for 61.8% retracement at 0.8690.

In the bigger picture, decisive break of 0.9223 resistance will argue that whole down trend from 1.0342 (2017 high) has completed with three waves down to 0.8332 (2023 low). Outlook will be turned bullish for 1.0146 resistance next. Nevertheless, rejection by 0.9223 will retain medium term bearishness for another decline through 0.8332 at a later stage.

Daily Pivots: (S1) 1.2716; (P) 1.2758; (R1) 1.2837; More...

GBP/USD's rally from 1.2099 continues today and breaks through 1.2810 resistance. Next target is 61.8% retracement of 1.3433 to 1.2099 at 1.2923. Sustained break there will bring retest of 1.3433 high. For now, further rise is expected as long as 1.2558 support holds, in case of retreat.

In the bigger picture, the break of 55 W EMA (now at 1.2607) argues that fall from 1.3433 (2024 high) has completed at 1.2099 as a corrective move. The uptrend from 1.0351 (2022 low) is not over yet. Firm break of 1.2810 resistance will solidify this bullish case.

Daily Pivots: (S1) 1.0522; (P) 1.0575; (R1) 1.0679; More...

EUR/USD accelerates further higher today and met 100% projection of 1.0176 to 1.0531 from 1.0358 at 1.0173 already. There is no sign of topping yet. Intraday bias stays on the upside for 161.8% projection at 1.0932 next. On the downside, below 1.0636 minor support will turn intraday bias neutral again first.

In the bigger picture, the strong rebound from 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199 argues that fall from 1.1274 might be a correction only. Sustained trading above 55 W EMA (now at 1.0668) should indicate that this correction has already completed with three waves down to 1.0176. Rise from 0.9534 (2022 low) might then be ready to resume through 1.1274. Nevertheless, rejection by 55 W EMA would keep outlook bearish for another fall through 1.0176 at a later stage.