ECB could turn SNB’s old 1.20 floor into new ceiling for EUR/CHF
Fawad Razaqzada April 25, 2018 1:42 PM
In January 2015, the Swiss National Bank in a move that took everyone by surprise decided to remove the then floor of 1.20 in the EUR/CHF exchange rate, despite repeatedly promising to defend that level at all costs and for as long as necessary. Rates literally tanked more than 2,000 pips in a matter of minutes as the franc sky rocketed. Fast forward just over three years, the once popular currency pair last week managed to rise back to that 1.20 hurdle again, thus making back all of its SNB-related losses.
In January 2015, the Swiss National Bank in a move that took everyone by surprise decided to remove the then floor of 1.20 in the EUR/CHF exchange rate, despite repeatedly promising to defend that level at all costs and for as long as necessary. Rates literally tanked more than 2,000 pips in a matter of minutes as the franc sky rocketed. Fast forward just over three years, the once popular currency pair last week managed to rise back to that 1.20 hurdle again, thus making back all of its SNB-related losses. Of course, the SNB has made no mistake about being active in the foreign exchange market and the resulting weakness in the franc is proof of that. But where do we go from here? If the 1.20 level was too high then, it surely is still the case now. After all, there’s still no signs of inflation in Switzerland overheating despite the softer exchange rate. At 0.8% year-over-year, CPI inflation in Switzerland remains among the lowest in the major economies. What’s more, there is now the possibility that the European Central Bank may reinstate its dovish policy stance again given the recent weakness in Eurozone data, most notably in Germany. The ECB policy statement and ECB President Mario Draghi’s press conference will therefore be in focus tomorrow. If the central bank revises down its economic growth or inflations forecasts, or otherwise hints at the prospects of delaying policy normalisation process, then the euro could drop sharply. If this happens to be the case the EUR/CHF could fall in euro’s slipstream. The safe haven franc meanwhile may also get a boost from the prospects of further falls in the stock markets.
So, there is a possibility that the old floor of 1.20 may now act as ceiling, at least in the short term anyway. With the 1.20 representing such an important psychological barrier, the EUR/CHF’s hesitation to push above it is hardly surprising. Thus we may see further profit-taking and renewed selling pressure here in the days to come, especially if the ECB turns dovish again. That being said, the trend is still bullish and there are lots of key levels that could potentially support prices, so the downside could be limited. Among others, 1.1885 is important level in that it was the base of the breakout that led to the move to 1.20. As it happens, 1.1885-ish also corresponds with the bullish trend line, which comes in just above the 21-day exponential moving average. But the key support range is further lower, between 1.1800 and 1.1830. This area had been resistance in the past and so could turn into support upon a potential re-test. Meanwhile if the 1.20 hurdle gives way then there’s not much in the way of further resistance until 1.2065/70, the 127.2% Fibonacci extension level of the most recent drop.
Source: eSignal and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.