SNB Grabs the Spotlight

The Fed stuck to the company line (perhaps a slight hawkish lean) stating “conditions in financial markets have generally improved in recent months” and “the pace of economic contraction is slowing” in regard to growth. The ECB first 12-month refinance operation went well, with 1121 banks asking for EUR442bn. While unconfirmed by the SNB, we have heard from a few banks that they saw official names buy EUR and interestingly USD, against the CHF.

[B]News and Events:
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While the FOMC failed to excite the market, it was SNB’s currency intervention which provided the day’s fireworks. Overall, the Fed stuck to the company line (perhaps a slight hawkish lean) stating “conditions in financial markets have generally improved in recent months” and “the pace of economic contraction is slowing” in regard to growth. In regard to inflation, stated �substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time." And finally in order to temper the markets’ tightening expectations stated “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” The accompanying statement interestingly enough failed to mention an exit strategy, which suggests the FOMC members believe that recovery is still far off. The ECB first 12-month refinance operation went well, with 1121 banks asking for EUR442bn (a massive amount of liquidity). The key question is what the banks will do with the new capital. The ECB hopes that banks will lend the money out, easing credit conditions. However, we have our suspicion. In fact we are concerned that the large demand is representative of weak balance sheets rather than demand from consumers. But the real drama was in Switzerland . While unconfirmed by the SNB, we have heard from a few banks that they saw official names buy EUR and interestingly USD, against the CHF. The EURCHF jumped from 1.5013 to 1.5381 while the USDCHF climbed to 1.1022. In the past, post-intervention sell off in the CHF has been short lived and give 1. the SNB is only looking to halt appreciation and 2. CHF is still undervalued against the EUR we expect yesterday’s move to be temporary. While the SNB is keen on easing monetary conditions through currency intervention helping to fight off deflation, we don�t expect the SNB to step right back in until the 1.5000ish level. On the docket today is US GDP, PCE and initial jobless claims.

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Today’s Key Issues (time in GMT):[/B]

00:00 ZAR SARB interest rate announcement, % Jun 7.00 exp, 7.50% prior
06:00 GBP Nationwide house price index, % m/m (y/y) Jun -0.4 (-10.7) exp
07:00 EUR ECB’s Bini Smaghi participates in a panel discussion on the subject of “Lessons of the crisis” in Rome
07:15 SEK Manufacturing confidence, index Jun -30 exp
07:15 SEK Consumer confidence, index Jun -8.8 exp
07:30 SEK PPI, % m/m May 0.0 (3.5) exp
09:00 EUR Industrial orders, % m/m Apr -0.3 exp, -0.6 (-31.2) prior
12:30 USD GDP, % q/q saar Q1-F -5.7 (-2.5) exp, -5.7 (-2.5) P
12:30 USD GDP price index, % q/q saar Q1-F 2.8 (2.1) exp, 2.8 (2.1) P
12:30 USD Initial jobless claims, thous (4wk mvg avg) 20-Jun 608 (616) exp
14:00 USD Fed Chairman Bernanke testifies on the Bank of America-Merrill Lynch deal before the House Oversight Committee
18:30 EUR ECB Executive Board member Stark speaks at the annual dinner of the German-British Chamber of Industry London
19:30 MXN Retail sales, % y/y Apr -5 exp, -0.5 prior
22:45 NZD Real GDP, % q/q Q1 -0.7 exp, -0.9 prior
23:50 JPY Nationwide CPI ex. perishables % y/y May -1.1 exp, -0.1 prior
23:50 JPY Tokyo CPI ex. perishables % y/y Jun -1.0 exp, -0.7 prior
23:50 JPY Nationwide CPI % y/y May -1.1 exp, -0.1 prior
23:50 JPY Tokyo CPI % y/y Jun -1.3 exp, -0.8 prior

[B]The Risk Today: [/B]

[B]EurUsd:[/B] initial support at 1.3830 ahead of 1.3750. Recovery through 1.4178 required to re-instate the bullish tone.

[B]GbpUsd:[/B] a break above 1.6660 necessary to reinforce the bullish theme. heavy tone and currently trading near horizontal support at 1.6189.

[B]UsdJpy:[/B] Looking for 97.20/30 area to provide strong resistance on the topside today, with bearish moving averages still to the fore. 94.40 supports

[B]UsdChf:[/B] the SNB changed the game. Rapid rise from 1.0633 has cleared 1.0986, targets 1.1030 near term key Fibonacci resistance. Remains vulnerable below 1.1264 key resistance.

[B]Resistance and Support:

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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland