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NZDUSD has been holding within a narrow range over the last couple of days, with upper boundary the mid-level of the Bollinger band around 0.6590 and lower boundary the 0.6565 support level. The MACD is flattening near its red signal line, while the RSI is still hovering below the neutral threshold of 50, all signaling a more cautious trading in the short term.

Traders would be eagerly looking for a break below 0.6565 to increase selling orders. If that’s the case, the rally could last until the 61.8% Fibonacci region of the rally from 0.6480 to 0.6880 near 0.6560. If bearish forces appear even stronger, 0.6525 should be another barrier to keep in mind.

Should the price erase the recent downward movement and jump above the 0.6590 resistance, the 38.2% Fibonacci of 0.6600 could provide immediate resistance. Moving marginally higher, the focus could shift to the 40-simple moving average (SMA), which is located near 0.6610 in the 4-hour chart, while more gains could drive the pair until the 23.6% Fibonacci of 0.6630.

In brief, despite the recent neutral action the price is heading lower following the pullback on the seven-week high of 0.6880.

Equities quickly bounce back

It didn't take long for investors to buy the dip, with equity markets back in the green on Thursday following a two day pause which appeared to be nothing more than soft profit taking.

The rebound even follows a brief dip in US futures overnight, which came very suddenly and appeared to be triggered by very little, but those losses were gradually recouped over the following hours. The US inflation data on Wednesday didn't do the markets any harm, with the slight dip only adding to the case for rate cuts this year, although it wasn't quite significant enough to dramatically alter people's views.

The odds have slightly moved in favour of a third rate hike by the end of the year – although no hike this month – but this has been something of a coin toss for a while with the pendulum swinging back and forth between two and three. Ultimately, the meeting – assuming it takes place – between Trump and Xi later this month will highly influence how aggressive the Fed will be, which is probably largely why the central bank is expected to hold this month.

Oil spikes on reports of tanker explosions

Oil prices have spiked on Thursday following reports of tankers being attacked in the Gulf of Oman, off the coast of Iran. This comes a month after allegations of sabotage in the same region, which was blamed on Iran and threatened to stoke further tensions in the region. It comes at a time when the US has imposed sanctions on Iran in an attempt to reduce oil exports to zero, ruin the economy and apply maximum pressure to the regime after Trump pulled out of the nuclear accord.

The knee jerk reaction is more a response to the risks associated with higher tensions in the region and prospect of more attacks, than immediate impact on oil supplies. It comes at a time when oil prices have been under pressure from weaker economic prospects and record US output, despite efforts by OPEC and its allies to reduce output and cut the oversupply. WTI was hovering around $50 when the reports came out which may have aided the rally, being such a key support level. As long as prices remain below $55 though, it will continue to look vulnerable.

Gold eyes prior peak after brief correction

Gold is continuing to edge higher today, supported to an extent by the weaker dollar, not that it held the yellow metal back much yesterday. It found strong support around $1,320 earlier this week and has since burst higher with the previous peak around $1,350 in its view. A break of this could propel gold higher, although it will have to be matched with momentum because as we saw last week, the absence of this saw it reverse course very quickly.

The shallow correction earlier this week will be encouraging for gold bulls, having only retraced around a third of the previous rally, although this optimism may fade fast if it runs out of steam prior to the peak. Risk appetite in the markets is likely to work against gold but the dollar looking vulnerable is clearly supportive.

Markets continue to put in asset prices their concerns about the prolonged trade disputes between China and the United States. However, until now we do not see sharp sell-off of risk-sensitive assets as Central banks in a hurry with their monetary policy stance easing.

Economists and market participants increasingly believe that the Fed will lower rates quite soon. The ECB recently introduced measures aimed to support bank lending. Many other Central banks from India to New Zealand are lowering their key rates recently.

Although the easing of financial conditions keeps markets from falling more sharply, economic reports increasingly point to a cooling of both business activity and inflation pressure. Low inflation allows the Central Bank to soften its policy but it is often a symptom of more serious problems, for which the current measures are not enough.

Stock

Major stock indices from China to the U.S. declined for the second day in a row. This dynamic is supported by the strengthening of the positions of securities of the so-called defensive sectors: media, healthcare and telecoms. Usually, investors choose these stocks in anticipation of the economic slowdown. In addition to fears of trade wars, the market in Hong Kong was under pressure from crowdy public protests, that sent HengSeng to the lows since January. Lately, the index received support after the words of Chinese Deputy Prime Minister Liu, who called for new measures to support the economy.

American SPX went down for the fourth consecutive trading session, threatening to fall below the 50-day average.

EURUSD

The single currency failed to develop the growth, running into increased pressure from sellers after growth above 1.1340 and dropped to 1.1280. The reason for the sale was Trump's statement that he is considering sanctions against the Russian Nord stream-2. On Thursday morning, the pair tries to return to the levels above 1.1300.

Gold

Market caution continues to support gold. Quotes of this metal rose to $1337, repeatedly trying to push above this year highs (and the last 5.5 years) at the 1340-1360 area. Thus, gold will have to pass an important test. The beginning of the trend to decline the last two times, in April 2018 and November 2016, was due to a sharp turn of the stock indices to growth when the demand for "safe-havens" was on the decline. So far, the situation is on the verge, and the chances are high that we can witness a breakthrough in the resistance area. If this happens, it will be an additional warning sign for the markets.

WTI

This week the pressure on oil has increased. American WTI returned to five-month lows overnight after reports of the continued growth of Crude Oil inventories in the U.S. Trying to lobby the American energy in Europe, Trump threatened to put sanctions to the North Stream-2. This is clearly a negative signal for the markets, because Russia within OPEC+ stands for maintaining prices near current levels, while in the US production at current prices for Brent continues to grow faster than demand.

Notes/Observations

• Oil prices rebound from 5-month lows after ‘suspected attack' on tanker in Sea of Oman
• Eurogroup meets to discuss Italy and its debt situation
• Protests continue in Hong Kong as Legislator again postpones vote on extradition bill

Asia:

• Australia Jun Consumer Inflation Expectation: 3.3% v 3.3% prior
• Australia May Employment Change: +42.3K v +16.0Ke; Unemployment Rate: 5.2% v 5.1%e
• China Global Times Editor-in-chief Hu Xijin tweeted: "It's rare to see scathing attacks against the US in state media. This shows Beijing was preparing for China-US ties [to further worsen]."
• Hong Kong Legislator again postpones meeting on China extradition bill (second delay) as protests continue
• China Vice Premier Liu He reiterated that growth, employment, balance payment were within a reasonable range. China had sufficient policy tools to meet challenges (Note: had no comments on trade with the US)
• China FX Regulator SAFE Chief Pan Gongsheng: FX market had been generally stable, fully confident to maintain FX market stability
• China inflation and the global dovish monetary environment may provide more room for the China authorities to adjust money and credit supplies as a tool to counter downside risks if trade tension escalated

Europe/Mideast:

• UK Parliament rejected Labour-backed bid to block no-deal Brexit in 309-298 vote

Americas:

• President Trump stated that he had a feeling that we're going to make a deal with china; if US could not make a deal with china then tariffs on $325B of Chinese goods would be implemented

Energy:

• Algeria reportedly raised idea of OPEC+ supply cut of 1.8M bpd in H2'19 (up from 1.2M currently). OPEC+ still expected to roll over oil supply cut of 1.2M bpd beyond June

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.28% at 380.80, FTSE +0.26% at 7,386.75, DAX +0.58% at 12,184.77, CAC-40 +0.12% at 5,381.25, IBEX-35 +0.44% at 9,280.02, FTSE MIB +0.49% at 20,571.50, SMI +0.42% at 9,898.50, S&P 500 Futures +0.31%]
• Market Focal Points/Key Themes: European Indices trade higher across the board recovering from earlier losses tracking a mixed session in Asia over night and higher US futures. Oil names rebound as crude prices advance following an attack in the Gulf of Oman on two Japanese Oil tankers, raising fears of further confrontation. On the corporate front shares of Record Plc gains over 13% after a rise in profits and Revenue, with Just Group another notable gainer following comments at its AGM. Aurubis is a notable decliner after issuing a profit warning for Q3 and FY19, with Majestic Wines and PZ Cussons also declining on earnings and outlook. In other news 1&1 Drillisch, Telefonica Deutschland and United Internet are among the gainers following the completion of the 5G auctions in Germany. Elsewhere Marks & Spencer declines following the results of its rights issue; VARTA gains on following a placing, while Ferguson also gains after Trian Funds acquires at ~6% stake. Looking ahead notable earners include Francesca's Holding, Duluth Holding's and Destination Maternity among others.

Equities

• Consumer discretionary: Tesco [TSCO.UK] +0.5% (trading update), Just Group [JUST.UK] +10% (AGM statement), Ferguson [FERG.UK] +6.5% (stake purchased), Majestic Wine [WINE.UK] -9% (earnings; Chairman steps down), Marks & Spencer [MKS.UK] -3% (results of placing), PZ Cussons [PZC.UK] -4% (trading update; CFO resigns)
• Financials: Record [REC.UK] +12.5% (earnings)
• Industrials: Thales [HO.FR] +3% (adjusts outlook), Aurubis [NDA.DE] -10.5% (profit warning)
• Technology: Soitec [SOI.FR] +2.5% (AGM), United Internet [UTDI.DE] +5%, 1&1 Drillisch [DRI.DE] +9% (German 5G auction results), Sopheon [SPE.UK] -2% (trading update)

Speakers

• Swiss National Bank (SNB) left the Sight Deposit Rate unchanged at -0.75% and maintained the 3-Month Libor Target Range between -1.25% to -0.25% (both as expected). SNB did introduce a new a policy rate to replace the target range as the future of Libor was not guaranteed and it currently stood at -0.75%. SNB reiterated that the Swiss franc was highly valued, and the situation on the FX market remained fragile. Reiterated prepared to intervene in markets if needed. Inflationary pressure were likely to remain moderate but the risks to this baseline scenario were still to the downside
• SNB Financial Stability Report noted that it was making progress in "too big to fail" regulations in the areas of both resilience and resolution. Banks further raised exposure to mortgages and real estate. SNB was closely monitoring residential property and saw the need for targeted measures. Rate risk from maturity transformation remained high
• SNB quarterly forecasts maintained GDP at 1.5% while raising 2019 CPI from 0.3% to 0.6% and 2020 CPI from 0.6% to 0.7%
• SNB Jordan post rate decision press conference reiterated that the Swiss franc was highly valued, and the situation on the FX market remained fragile. Expansionary monetary policy remained necessary. Change to Swiss policy rate needed because future of Libor was not guaranteed, adjustment meant no change to current monetary policy. SNB noted that inflationary expectations had declined slightly
• Swiss SECO June Economic Forecasts raised 2019 GDP from 1.1% to 1.2% while maintaining 2020 GDP at 1.7%. It raised 2019 CPI from 0.4% to 0.6% while maintaining 2020 CPI at 0.6%. Saw the risks of major correction in domestic housing market
• Swiss KOF Institute Summer Economic Forecast raised 2019 GDP growth from 1.0% to 1.6% and 2020 GDP growth from 2.1% to 2.3%. It maintained both 2019 and 2020 CPI at 0.5% and 0.6% respectively
• ECB: Global use of the Euro rose last year, mostly on diversification away from the dollar, due in part to political concerns
• German Economic Ministry commented that it expected a better global economy in H2 buts its domestic situation for Q2 remained subdued. Domestic economy remained intact but being held back by export industry due to part to trade conflicts. Domestic consumption was strong
• Eurogroup cheif Centeno: To discuss Italy debt at today's meeting; Needed to clarify political decisions needed to make the country compliant with EU rules
• Italy Dep PM Di Maio (5-Star) reiterated coalition govt stance that taxes must be cut to reduce debt and increase economic growth
• France Fin Min Le Maire: To propose spending cuts in 1st half of July to help fund President Macron's reduction in income tax
• Czech Central Bank's Benda reiterated stance that saw room for higher rates and would consider voting for hike in Jun meeting
• EU reportedly planned bilateral trade pacts with WTO members
• China Commerce Ministry (MOFCOM) Spokesman Gao Feng reiterated govt stance that China to fight to the end if US insisted to escalate. China would not back down on principle issues in trade talks. Trade war will bring recession to both US and global economy
• China Foreign Ministry spokesperson Geng Shuang: Hong Kong matters were purely an internal situation; deplored, opposes EU comments on Hong Kong
• Japan PM Abe commented that Iran's Supreme leader Khamenei spoke of his belief of peace and indicated that the country did not have any intention to possess or use nuclear weapons

Currencies/Fixed Income

• USD: The US Dollar continued its grind lower yesterday as the dollar index bounced in between the 96.5 and 97 handle. There haven't been any new comments to move the dollar coming out of the White House or China so we could see this range trading continue. Both sides are hoping to have its President meet at the G20 towards the end of June.
• EUR: After selling off yesterday the Euro is now trading back below the 1.13 handle. With the lack of comments coming from Draghi yesterday and no more major news due out this week, the Euro should see volatility lower than last week. The only things we may get are comments from Italy regarding taxes and their tensions with the EU. Eurogroup meets today and would discuss Italy debt and look to clarify political decisions needed to make the country compliant with EU rules.
• GBP: With Boris Johnson yesterday officially tipping his hat in for the race of the Tory leadership and the UK parliament rejecting a labor-backed bid to block a no-deal Brexit in a 309-298 vote, the cable saw quite a bit of volatility as the cable now trades back below the 1.27 handle. We could continue to see this elevated level of volatility as Carney is due to speak Friday, and we have the CPI figures and the BOE rate decision next week. To the upside we have a level in the region of 1.2750 and to the down side in the region of 1.26.

Economic Data

• (SE) Sweden May PES Unemployment Rate: 3.4% v 3.5% prior
• (NL) Netherlands May CPI M/M: -0.1% v +0.7% prior; Y/Y: 2.4% v 2.9% prior
• (NL) Netherlands May CPI EU Harmonized M/M: -0.3% v +1.1% prior; Y/Y: 2.3% V 2.6%e
• (FI) Finland Apr Final Retail Sales Volume Y/Y: 3.6% v 3.2% prelim
• (DE) Germany May Final CPI M/M: 0.2% v 0.2%e; Y/Y: 1.4% v 1.4%e
• (DE) Germany May Final CPI EU Harmonized M/M: 0.3% v 0.3%e; Y/Y: 1.3% v 1.3%e
• (CH) Swiss May Producer & Import Prices M/M: 0.0% v 0.1%e; Y/Y: -0.8% v -0.7%e
• (CH) Swiss National Bank (SNB) left the Sight Deposit Rate unchanged at -0.75% and maintained the 3-Month Libor Target Range between -1.25% to -0.25% range (both as expected). introduce a new a policy rate (to replace the target range as the future of Libor was not guaranteed)
• (SE) Sweden May Average House Prices (SEK): 2.927 v 3.021M prior
• (IT) Italy Q1 Unemployment Rate: 10.4% v 10.4%e
• (CZ) Czech Apr Current Account Balance (CZK): 17.7B v 20.0Be
• (EU) Euro Zone Apr Industrial Production M/M: -0.5% v -0.5%e; Y/Y: -0.4% v -0.6%e
• (GR) Greece Q1 Unemployment Rate: 19.2% v 18.7% prior

Fixed Income Issuance

• (IS) Iceland opened its book to sell €500M in 5-year notes; guidance seen high 30bps area to mid-swaps
• (SE) Sweden sold SEK345M in 0.125% Jun 2026 Inflation-linked bonds; Avg Yield: -2.1096 v -1.743% prior; Bid-to-cover: 2.35x v 5.09x prior
• (IE) Ireland Debt Agency (NTMA) sold €1.0B vs. €1.0B indicated in 1.1% May 2029 IGB bonds; Yield: 0.297% v 0.846%; Bid-to-cover: 2.7x v 2.2x prior
• (IT) Italy Debt Agency (Tesoro) sold €1.5B vs. €1.0-1.5B indicated range in 3.35% Mar 2035 BTP; Avg Yield: 2.87% v 3.00% prior; Bid-to-cover: 1.56x v 1.37x prior

Looking Ahead

• 05:30 (ZA) South Africa Apr Total Mining Production M/M: -0.5%e v +3.8% prior; Y/Y: -0.5%e v -1.1% prior; Gold Production Y/Y: No est v -17.7% prior; Platinum Production Y/: No est v -0.5% prior
• 05:30 (PL) Poland to sell Bonds
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills
• 06:00 (ZA) South Africa Q2 BER Business Confidence: 28e v 28 prior
• 06:00 (IE) Ireland May CPI M/M: No est v 0.4% prior; Y/Y: No est v 1.7% prior
• 06:00 (IE) Ireland May CPI EU Harmonized M/M: No est v 0.4% prior; Y/Y: No est v 1.7% prior
• 06:00 (IE) Ireland Apr Property Prices M/M: No est v 0.2% prior; Y/Y: No est v 3.9% prior
• (EU) Euro-area finance ministers (Eurogroup) meet in Luxembourg
• 06:40 OPEC Monthly Report
• 07:00 (FI) Finland Parliament no-confidence vote
• 08:00 (PL) Poland Apr Current Account Balance: €0.7Be v €0.5B prior; Trade Balance: €0.5Be v €0.6B prior; Exports: €19.5Be v €19.7B prior; Imports: €18.9Be v €1.9B prior
• 08:00 (BR) Brazil Apr IBGE Services Sector Volume Y/Y: -0.6%e v -2.3% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (UK) 1st round of Conservative Party Leadership vote (**Note: Each of the 10 candidates would need 17 votes in the 1st round to progress to next stage with further ballots due next week)
• 08:30 (US) May Import Price Index M/M: -0.2%e v +0.2% prior; Y/Y: -1.2%e v -0.2% prior; Export Price Index (ex-petroleum) M/M: -0.2%e v -0.6% prior
• 08:30 (US) May Export Price Index M/M: -0.2%e v +0.2% prior; Y/Y: No est v 0.3% prior
• 08:30 (US) Initial Jobless Claims: 215Ke v 218K prior; Continuing Claims: 1.67Me v 1.682M prior
• 08:30 (CA) Canada Apr New Housing Price Index M/M: 0.0%e v 0.0% prior; Y/Y: 0.1%e v 0.1% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 7th: No est v $495.2B prior
• 11:00 (US) Treasury announcement on 5-year TIPS reopening
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 13:00 (US) Treasury to sell 30-Year Bonds Reopening
• 15:00 (AR) Argentina May National CPI M/M: 3.1%e v 3.4% prior; Y/Y: No est v 55.8% prior
• 07:00 (FI) Finland Parliament no-confidence vote
• 08:00 (PL) Poland Apr Current Account Balance: €0.7Be v €0.5B prior; Trade Balance: €0.5Be v €0.6B prior; Exports: €19.5Be v €19.7B prior; Imports: €18.9Be v €1.9B prior
• 08:00 (BR) Brazil Apr IBGE Services Sector Volume Y/Y: -0.6%e v -2.3% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:00 (UK) 1st round of Conservative Party Leadership vote (**Note: Each of the 10 candidates would need 17 votes in the 1st round to progress to next stage with further ballots due next week)
• 08:30 (US) May Import Price Index M/M: -0.2%e v +0.2% prior; Y/Y: -1.2%e v -0.2% prior; Export Price Index (ex-petroleum) M/M: -0.2%e v -0.6% prior
• 08:30 (US) May Export Price Index M/M: -0.2%e v +0.2% prior; Y/Y: No est v 0.3% prior
• 08:30 (US) Initial Jobless Claims: 215Ke v 218K prior; Continuing Claims: 1.67Me v 1.682M prior
• 08:30 (CA) Canada Apr New Housing Price Index M/M: 0.0%e v 0.0% prior; Y/Y: 0.1%e v 0.1% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 7th: No est v $495.2B prior
• 11:00 (US) Treasury announcement on 5-year TIPS reopening
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 13:00 (US) Treasury to sell 30-Year Bonds Reopening
• 15:00 (AR) Argentina May National CPI M/M: 3.1%e v 3.4% prior; Y/Y: No est v 55.8% prior

The USD/CHF has been straddling along the ascending trend line in low volatility conditions as the majority of FX markets are.

Low volatility and lack of momentum in the FX market pose a real hurdle to intraday traders. Compared to major indices such as Nikkei and DOW, Forex market looks like a snail. The USD/CHF shows a potential bounce, but for that, we need volatility. 0.9920-30 is the POC zone, and the target is 0.9970-85. If the price closes above W H4 0.9967 then tomorrow we might see 1.0011.

Eurozone industrial production dropped -0.5% mom in April, in line with expectation. in EU28, industrial production dropped -0.7% mom.

Among the main industrial groups, in Eurozone, production of durable consumer goods fell by -1.7%, capital goods by -1.4% and intermediate goods by -1.0%. Production of non-durable consumer goods rose by 0.2% and energy by 1.4%.

Full release here.

German Federal Ministry of Economy and Energy said the economy will "remain subdued for the time being". And data indicates continuation of "two-part development" as services support growth but manufacturing is in decline. Meanwhile, there are also two parts in manufacturing, paralyzing industry and booming construction.

The ministry also noted "the first signs of the economic slowdown are evident in the labor market: employment continues to grow, but the lower momentum is solidifying. Unemployment increased in May, not just because of special factors."

Full release here.

Swiss State Secretariat for Economic Affairs expects growth to remain "below average" this year on subdued outlook and high uncertainty. But growth forecasts for 2019 was revised slightly up to 1.2%, from 1.1%. For 2020, growth projection was kept unchanged at 1.7%.

SECO noted that "declining momentum in the international economy, the development of world trade is weak and demand for Swiss products is flattening out, slowing down the export economy." And, "downside risks continue to predominate for the global economy".

It warned that with the recent tariff increases between US and China, the trade dispute has taken an "unfavourable turn". Swiss economy would "cool off more strongly" if situation were to intensify further, particularly if EU and Germany were to be significantly affected. Meanwhile, "political uncertainty remains high in Europe", including Brexit and Italy.

Full release here.

The US dollar slightly strengthened against a basket of major currencies despite weak economic statistics. Inflation in the United States accelerated by only 0.1% in May, while experts forecasted an increase by 0.2%. A sharp increase in crude oil inventories and a decrease in oil prices supported the US currency. The US dollar index closed in the positive zone (+0.34%).

The US-China trade conflict is still in the spotlight. China’s Vice Premier Liu He said yesterday that the Chinese authorities intended to take measures to support the economy and keep ample liquidity in the financial sector amid growing US trade pressure. China is expected to correct the monetary supply in the near future, as well as to reduce interest rates to protect the economic development of the country in the case of an escalation of the trade war with the United States.

The "black gold" prices fell by 4% due to a sharp increase in US oil inventories. At the moment, quotes have been recovering. Futures for the WTI crude oil are testing $52.25 per barrel.

Market Indicators

Yesterday, the bearish sentiment was observed in the US stock market: #SPY (-0.18%), #DIA (-0.16%), #QQQ (-0.58%).

The 10-year US government bonds yield is consolidating. At the moment, the indicator is at the level of 2.10-2.11%.

The news feed on 2019.06.13:

Today the publication of important economic news is not expected.

Even stretched, we doubt that today's SNB Monetary policy assessment and following press conference will have any profound or global ramifications. The small, open Alpine country is at the mercy of larger superpowers. Policy setting in a purely reactionary position. Overall, the SNB took a decidedly dovish tone as growth outlook continues to decelerate and risk to the global economy increases. Inflation forecast rose 0.6% from prior quarter 0.3%, primarily due to “rise in the prices of imported goods” caused by the weaker CHF. It was universally expected that they maintain its three-month LIBOR target at -1.25% to -0.25%. In regards to FX, there was no change in the view that the CHF is “still highly valued” (same as March language), and reinstated commitment to physical FX intervention if necessary. Following much-publicized comments, SNB President Jordon view that interest rates can go deeper into negative territory. In the past, Jordon stated, “If we come to the conclusion that it's necessary to fulfill our mandate, then of course we're ready to use our monetary policy instruments.” Despite the Swiss government marginally raising its economic growth outlook for 2019 to 1.2% (GDP grew by 2.3% in the first quarter) and SNB's 1.5% forecast, the SNB statement took a cautious tone. Threats specifically relating to US-China trade tensions, Brexit uncertainties and eroding Italian financial conditions (spilling over to Italy-EU relations). Although the SNB is communicating a friction-less environment to policy setting we suspect things are more complicated. The central bank's massive balance sheet has become a concern and assuming more FX exposure (even converting into equities) is not a given. While negative interest rates are hurting, banks and savers while providing upward momentum to housing prices (highlighted in the statement). With global monetary policy normalization reversing, and macro-economic risk increasing, CHF will remain in high demand.

Historically, CHF has outpaced G10 FX during Fed easing cycle and recession. Despite the SNBs negative interest rate policy and threats physically intervene in currency markets, CHF is the king of economic safe-haven plays. Switzerland has the largest current account surplus as a percent of GDP in the majors. Last month the CHF has gained 2.5% against the USD with signals that the trend could accelerate sharply should the global economy deteriorate further. A lack of positive developments at this weekend G20 will put downward pressure on EURCHF.