The Euro fell against the Swiss franc early on Thursday but is still very much in an uptrend.
EUR/CHF
The Euro has dropped a bit during the trading session on Thursday against the Swiss franc, as interest rates in Germany have rolled over just a touch. But really, part of what's moving it is the August CPI coming in at 0.8% year-on-year, up from 0.4% in July, and against the consensus of 0.5% in Switzerland.
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In other words, it is higher than expected. That's the first time that we've seen this kind of perk up. Now, whether or not that ends up being a longer-term problem remains to be seen. Most of what seemed to be the culprit here would have been energy, and that can't be a huge surprise, quite frankly.
Second-quarter GDP had printed strong, reported at 1.9%, the best in 5 years against the 1.6% consensus, with the annual rate jumping to 2.8%.
The Carry Trade and Interest Rate Differentials
This is one that I think continues to be a little bit noisy, but there is a running bid underneath. If you look at the overall trend here, it is positive. We've been in a channel for some time, and you do get paid at the end of every day.
Ultimately, the carry trade is still much intact, is still very much intact, and the 0.94 level might have just been a bridge too far in the short term.
I look at the market as one that I'm willing to buy dips in. You get paid. There's no reason to panic here.
The interest rate differential probably continues to widen as traders are banking on a 25-basis point interest rate hike coming out of the ECB. Some places have it as 20, depending on where you look, but either way, it just makes it more attractive to own Euros than the Swiss franc.
Ultimately, the SNB doesn't have the ability to cut rates any further, while the ECB certainly can add, so this is still a very positive and one-way, lopsided trade for me. It's just a matter of position size and wherewithal.
We have been in a straight line a couple of times this year, the latest leg starting back in May, and quite frankly, nothing's changed.
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