Fears of tapering in the United States had a massive impact on the EUR/USD pair in June, with the euro falling sharply against the dollar in the fallout from the Federal Open Market Committee (FOMC) meeting. That said, it is still too early to know whether the US central bank will eventually reduce its asset purchases. The Fed needs more data on how inflation will pan out before deciding on a timeline. The market expects the central bank to make policy announcements in Jackson Hole in late August. However, figures and events such as the US inflation report (13/07), ECB meeting (22/07) and Fed meeting (28/07) could increase EUR/USD volatility in the meantime. From a technical analysis perspective, the pair is stuck between two major levels: support at 1.1804 and resistance at 1.2160. Given the lack of clarity on US monetary policy, EUR/USD could continue to trade within this wide range for much of the summer.
The EUR/GBP pair see-sawed within a narrow trade band in June. In the short term, all indicators show that the cross will continue to fluctuate around 0.85-86 for lack of catalysts. At its most recent meeting, the Bank of England confirmed its monetary status quo (main rate held at 0.1% and stock of purchased assets maintained). Some analysts anticipated a more hawkish tone in favour of phasing out support measures. But no. For the time being, monetary policy on both sides of the Channel remains on autopilot, as we previously indicated. Furthermore, emerging tensions between London and Brussels over Brexit do not seem to be worrying market participants.
In recent weeks, EUR/JPY has repeatedly tried to break out of the 133-134 range. To no avail. The pair has therefore begun a consolidation process, which explains the 1.92% drop in the monthly variation. We continue to believe that risk appetite remains dominant in forex, which should ultimately benefit the euro over the Japanese Yen. The only event to watch this month is the European Central Bank meeting on 22 July, but we expect it to hold few surprises. Technical analysis should be one of the main drivers impacting the pair in the coming weeks.
Unsurprisingly, volatility in EUR/CHF remained very low in June, fluctuating within a tight trading band of 130 points, which is small for such a long period. The lack of volatility is due to the virtual disappearance of risk aversion from forex markets as economies reopen worldwide. This has led to a wave of optimism that can be felt across many asset classes. The latest data from the Swiss National Bank also shows, as a result, considerably reduced intervention in the foreign exchange market in the second half of the year. For the time being, all indications are that volatility will remain very low, which means that the EUR/CHF pair is likely to remain anchored around 1.09-1.10 in the short term.
The EUR/CAD pair fluctuated throughout June. The euro lost ground against the Canadian dollar, which was reinvigorated by the strong surge in energy prices (Brent rose 9.8% and WTI 13.4% in June). Given the process of economic reopening under way, there is every reason to believe that commodity prices will continue to rise over the next three to six months. This should theoretically bolster commodity currencies such as the CAD against the euro.
Australia’s employment report for May confirmed that the recovery is on track. Australia now appears to be in a self-sustaining recovery, meaning a significantly reduced need for additional fiscal or monetary emergency stimulus measures. The main short-term focus will be the Australian central bank meeting on 6 July, after which some analysts believe that existing programmes could be adjusted. We may then see higher volatility in the EUR/AUD pair, which is why an appropriate currency hedging strategy is needed.
The slide in the EUR/CNH is largely due to economic dynamics in China. The country is at a more advanced stage in the economic cycle than the euro area. The second quarter can be considered the peak of growth for China, with the CNH strengthening significantly within the space of a few weeks. However, we should remain vigilant with regard to this currency pair, as volatility tends to resurge in the summer.
As expected, the Hungarian central bank tightened its monetary policy in an effort to counter inflation far higher than the objective tolerated by the central bank. Further rate hikes are clearly expected before the end of the year. The main policy rate, at 0.9%, is not high enough to truly alleviate inflationary pressures. The HUF had initially benefited from expectations of monetary tightening but, as is often the case, profits were taken. And that explains why the euro performed so well against the Hungarian currency in monthly variation. For the time being, the market does not anticipate any aggressive monetary tightening in Hungary (at least much less than in the Czech Republic for example), which should give the HUF less room to appreciate in the medium term.
The USD/HUF pair returned to the level hit in early May (just before the Hungarian central bank announced its intention to tighten monetary policy, which brought on a bullish rally in the HUF). In addition to the profit taking that has recently ended up penalising the HUF, concerns that the US central bank will initiate a tapering process have supported the US dollar considerably. In the short term, all evidence suggests that tapering – or more accurately, talk of tapering in the trading rooms – will drive the dollar upwards against many emerging currencies, including the HUF.
| DATE | CURRENCY | EVENT |
|---|---|---|
| 01/07 | USD |
ISM Manufacturing Index for June |
| 02/07 | USD |
US employment situation summary |
| 06/07 | AUD |
Central bank meeting |
| 06/07 | EUR |
ZEW German Economic Sentiment Index |
| 13/07 | USD |
Consumer Price Index for June |
| 15/07 | CNH |
Q2 GDP |
| 22/07 | EUR |
Central bank meeting and press conference |
| 27/07 | HUF |
Central bank meeting |
| 28/07 | USD |
Central bank meeting and press conference |