Euro Slips But KOF Helps the Swissie

The euro gave up the 1.2100 level in overnight session,
pressured more by profit taking rather than any weak economic data out of the
Euro-zone while the Swiss franc was helped by surprisingly strong results from
the KOF LEI report — Switzerland’s most important monthly statistic. The KOF
printed at 57 way above the 50 boom/bust level and significantly higher than the
48 expected. Additionally, prior month’s data was revised to 55 from original
value of 46. The KOF now stands at the highs of the year and suggests that
Switzerland’s economic slowdown may be coming to an end. While analysts do not
expect SNB to raise rates during its meeting in September, a rate hike at SNB’ s
following meeting in December is now s distinct possibility. The franc with its
ultra low 75bp interest rates has been one of the favorite funding instruments
for carry trade speculators which explains some of its weakness over the past
few months. Should SNB begin to tightening in December the franc is likely to
firm as carry trade sell flows would ease.

Meanwhile, the euro retraced some of is gains over the past two days as market’s
attention turns to US GDP data due 12:30 GMT. Expectations are for a gain of
3.5% vs. 3.8% the period prior. If the number does meet expectations it s will
be the 13th consecutive quarter of 3%+ growth the best performance since 1986.

Boris Schlossberg

Boris Schlossberg serves as Senior Currency Strategist with Forex Capital
Markets in New York, the largest retail forex market maker in the world. He is a
monthly contributor to SFO Magazine with articles focused on understanding
proper risk management, trader psychology and true market structure. He is also
a featured expert at and a frequent commentator for the
Marketwatch From Dow Jones Currency and Bond Report sections.