The euro rocketed against the US dollar on Wednesday due to a variety of factors, including a 6.4 percent jump in WTI crude oil futures (dollar bearish) and shift in Federal Reserve interest rate expectations to price in at least a 25bp cut by December (dollar bearish).
Meanwhile, Credit Suisse overnight index swaps are still pricing in just over 50bps worth of rate cuts by the European Central Bank within the next 12 months. However, I do not expect them to do so before the end of 2008 unless CPI falls significantly lower from current levels. Keeping in mind the potential for US dollar weakness, [B]my bias for the euro remains bullish, barring a drop below 1.3880[/B]. Meanwhile, the Swiss National Bank (SNB) is anticipated to leave rates unchanged at 2.75 percent tomorrow morning, as the Swiss economy holding up fairly well thanks to robust domestic demand and price pressures still strong. What about the incredibly instability in the markets? The SNB has tried to address liquidity issues in a one-day operations on Tuesday and Wednesday, as SNB Vice-Chairman Philipp Hildebrand said, "The current events in the United States show that it is still too early to say the storm is over.” Nevertheless, [B]like the low-yielding Japanese yen, my bias is in favor of Swiss franc strength amidst broad-based risk aversion in the markets.
[/B][B]Related Articles[/B]: Swiss Franc Interest Rate Outlook, Euro Interest Rate Forecast
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Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.[/B]