FX.co ★ Global macro overview for 31/08/2017

Global macro overview for 31/08/2017:

Andrea Maechler, member of the Governing Board of the Swiss National Bank made some important comments today. She stated that negative interest rates are vital for Switzerland at present, so the CHF situation remains quite fragile. She also added that it is too early to say whether the depreciation will continue. In its view, the negative interest rate is still an important instrument, although markets expect a very slow rate increase. According to Maechler, the expansionary monetary policy remains necessary as inflation remains at a low level despite some recent positive signs of a pickup.

This kind of comments confirms the SNB's well-known rhetoric regarding the negative interest rates and expansionary monetary policy. Last month, SNB President Thomas Jordan reiterated that SNB ultra-loose monetary policy remains "absolutely necessary" after SNB announced its commitment to keeping interest rates on the negative territory. The reason to continue with its monetary policy expansion is a part of continued efforts to tackle low inflation, the overvalued Franc and negative output. In this situation, the SNB is dependent on ECB's pace of monetary policy and may look at normalizing its policy once ECB President Mario Draghi decides to start rolling back the bank's asset purchase program. This is why the next ECB meeting in September will be very interesting for global investors as major changes might be announced.

Let's now take a look at the EUR/CHF technical picture on the H4 time frame. The market seems to be trading horizontally in a sideway manner between the levels of 1.1270 - 1.1480. A breakout in either direction is expected, but it is worth to mention that any escalation of the geopolitical risk will favor the move to the down side.