EUR: Soggy Sentiment Amidst Soft Data and Tighter Lending Standards
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EUR: Soggy
The ECB's euro trade-weighted index has fallen 1.3% so far this week. That is quite a sharp move. It seems investors have been unnerved by both the soft July PMI data and the ECB bank lending survey. The latter showed much tighter lending standards and a sharp decline in loans, particularly among businesses. There is not much European data today and instead, it looks as though EUR/USD will continue to trade on the soggy side through the session – especially since some of the China stimulus-powered rally in related asset classes (e.g., China mainland equities) looks to be petering out.
In our Fed preview published last week, we had targeted EUR/USD at 1.1050 on a slightly hawkish Fed meeting today. Softer European data has already brought us to that level. That suggests risk in EUR/USD towards 1.1000 on the back of the Fed at 20CET today – assuming the FX options market is correctly pricing a 60 pip range for EUR/USD over the next 24 hours.
Elsewhere, the softer euro has seen EUR/CHF dip to 0.9550. Swiss National Bank (SNB) sight deposit data released on Monday suggested the SNB was still selling FX reserves last week to get the trade-weighted Swiss franc stronger to fight inflation. The SNB does seem to like complete control over this currency pair and while the direction of travel may be 0.9500 or even last September's low near 0.9415, expect the moves to be very gradual.
