The EUR/USD rallied on Wednesday amid choppy trading as investors were mixed following the surprise SNB decision which lifted the euro versus the franc and accordingly versus the dollar on expectations that the European central banks might actually take action today.
Eased U.S. debt ceiling woes did not much relief the market as the focus shifted to slowing global growth and the fear of the era of sluggish growth and extended fiscal tightening that will further weigh on the fragile recovery.
The euro was powered by expectations that the ECB might take action to ease the tension after the sudden move from the SNB, which was also support for the euro to regain its appeal.
In an unexpected move, the Swiss National Bank cut the target range for the three month Libor Interbank rate to 0.00-0.25% from 0.00-0.75% and also said it will increase the supply of francs to the money market over the coming days.
The SNB said that the franc was “massively overvalued” and threatens the recovery amid rising downside pressure and worsening state of the economy. The SNB also said they will expand the sight deposits to 80 billion francs from 30 billion and add more measures if needed to support the recovery and prevent swissy from the extensive rally.
Nevertheless, with the ADP jobs numbers the tension somehow eased ahead of the nonfarm payrolls, yet the focus remains on Friday. As for Thursday the ECB is the spotlight with a light load of data from the United States.
Germany will start the major day for the euro zone at 10:00 GMT with June’s Factory Orders which are expected with 0.2% drop following 1.8% surge in May, while n the year to ease to 6.8% following 12.2%.
The highlight for the day will surely be the European Central Bank rate decision and press conference. The decision at 11:45 GMT is expected with steady rates and the main rate to be held at 1.50%.
Trichet’s press conference will follow at 12:30 GMT and investors are looking for hints for the next move, where a rate increase hint is highly unlikely and the president will refrain from strong vigilance. Also more focus will be on the ECB’s plan to deal with the debt crisis, whether the exception given to Portuguese bonds will be delivered to Ireland and what the president has to say about the Greek bond buyback and EFSF bond buying.
At 12:30 GMT we have the usual weekly jobless claims, where last week jobless claims fell to 398,000, which marked the lowest since early April.