EUR/CHF remains bid as SNB retains franc "high value" language
Fawad Razaqzada September 20, 2018 7:53 AM
The SNB was surprisingly relaxed about the currency’s recent strength, once again describing the franc as merely being "highly valued."
After strengthening noticeably since May, the perceived safe-haven Swiss franc has eased back a little over the past few days as risk assets rallied on relief that the trade dispute between China and the US would ease. Evidently, speculators also trimmed their exposure to the franc in the event of a surprise from the Swiss National Bank, although virtually no one had expected it to alter its monetary policy which has been on hold for several years now. Prior to today’s meeting of the SNB, the market was keen to find out whether the central bank’s rhetoric around the value of the Swiss franc had changed. As my colleague Matt Weller pointed out on Friday of last week, the SNB described the currency as being “significantly overvalued” ten consecutive times after its infamous removal of the 1.20 EUR/CHF floor back in January 2015 when the cross was trading between 1.05 and 1.10. But after the EUR/CHF rose towards 1.15 for the September 2017 meeting, the SNB has categorised the value of the franc as merely “highly valued.” With Switzerland historically being a “neutral country,” traders had also wondered whether the SNB would invite criticism as a “currency manipulator” from the trade-obsessed Trump Administration.
Well as it turned out, the SNB was surprisingly relaxed about the currency’s recent strength, once again describing the franc as merely being "highly valued." Still, the SNB being among the most dovish central banks out there, would not dare give the wrong impression. So to offset the fact that it maintained the language on the Swiss franc, the SNB lowered its inflation forecasts for 2019 and 2020 while suggesting that "the pace of growth is expected to slow slightly."
With no hints of near term tightening, the SNB will surely not act before the ECB next year, so the EUR/CHF could start to climb higher again. But if the franc were to strengthen further and the EUR/CHF falls below 1.10 again then the SNB is very likely to intervene by scooping up euros and dollars aggressively. So, whichever way you look at it, the downside for the EUR/CHF looks to be limited. For now, though, the SNB seems happy with the current level of the exchange rate but it obviously prefers the EUR/CHF to be trading significantly higher, above 1.20.
Meanwhile from a technical perspective, the EUR/CHF has held - for the time being - the first of its key long term support levels at 1.12. As can be seen this was previously a major resistance level.
If rates start to show bullish price action here then we could see the onset of a nice rally, although technically it may be too early to get bullish as so far the previous high at 1.1450 still remains intact. Once we have a higher high then that would be the end of the bearish trend technically speaking. Meanwhile if the selling pressure resumes then the next short-term support is at 1.1260, while the major support below 1.1200 comes in at around the 1.1080/5 level.
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.