SNB sits back and relaxes
After hitting 1.1711 against the Swiss franc, its highest level since the SNB removed the 1.20 floor, EUR/CHF started to reverse gains in the wake of last Thursday’s ECB meeting. Mario Draghi scored a pretty good knack during the press conference as he was able to announce a reduction of the monthly asset purchase of €30bn per month, which is clearly tightening, while at the same time sounding dovish. The trick was to claim that this was no taper but rather a small adjustment to take into account the improvement of the economic situation. The icing on the cake was the Draghi’s reminder that the central bank would be ready to reverse course the situation requires.
The last few months have been genuine holidays for the Swiss National Bank as EUR/CHF have kept rising. The total sight deposits at the SNB have stabilized at around CHF578bn since early May. Domestic sight deposits have even eased by 22.3bn since July; however, this decrease was offset by a surge in “other sight deposits”.
We believe that further upside EUR/CHF is quite limited in the short-term as traders are progressively adopting a more bearish bias on the pair. In addition, the Catalan crisis reminded everybody that the European Union is not as united as Brussels says. On the other hand, there is little incentive for investors to bet on a sharp reversal in EUR/CHF as monetary policy divergence is clearly in favour of the single currency. In addition, the SNB is far from lifting borrowing rates. A period stabilization is therefore the most likely scenario.
Crude Oil Prices: World Bank renewed its bullish forecast for 2018
The WTI crude oil price has broken its resistance area around 53$. The commodity is now trading above $54. This increase appears after the World Bank, in its last report, is predicting an increase in price for 2018. The World Bank target is $56 for next year. In this report the institution considers that the increase in demand as well as a decline the production volume will likely add upside pressures on the price.
It is worth noting that the forecast regarding oil prices are lower than the one made in April. Indeed the agreement between OPEC members may not be extended and the end of oversupply is likelier which increase upside risks in crude oil barrel valuation. If the OPEC agreement was abandoned, the impact on oil prices would definitely be significant. The World Bank also underlines risk that shale gas producers may also increase their production at current price levels.
For the time being, OPEC members have committed to their agreement at 120%, certainly in an effort to keep market shares against the US shale gas industry. We nonetheless consider that OPEC margin is getting thinner. Competition on oil prices are fierce and should still be at the advantage of the OPEC for some more time.
