Forex News and Events
The SNB’s efforts to counter the franc appreciation is still a source of anxiety in Switzerland. Although, the countrywide opinion is supportive of the decision to remove the EUR/CHF peg in the aftermath of January 15 (because it would have been unsustainable for the SNB to walk against the hardening EUR downtrend), the fear of more negative rates in franc spill over the economy. The harmful impact of negative rates in household savings, especially on their pension funds become increasingly worrying for the Swiss population.
Swiss citizens will submit their income declaration to tax office by the end of March and are all but comfortably paying taxes on their riskless CHF holdings that have by far not gained enough in 2014 to cover taxes they need to pay for amounts exceeding 50’000 franc on their current and saving accounts. The risk here is a flight to physical cash, which is practically possible and even convenient thanks to 1’000 franc banknotes. However, there are talks of a law project that would introduce taxes on physical cash holdings. Not so happy times for Switzerland. We do not rule out such possibility while staying aside from any prediction on FX prices before we have more clarity on this particular subject.
The Council of States was set to vote for an emergency action this week to challenge SNB’s drastic decision to remove the peg and to go aggressively negative on rates. The vote has been cancelled as the senators of liberal (PLR) and democrat (PDC) parties stepped away on Monday. This means even if National Council is still scheduled to debate on the issue on Wednesday, there is little scope for meaningful outcome. Hence, the Federal Council sends a clear message: the SNB is independent.
The SNB continues struggling to maintain EUR/CHF in between the implicit target of 1.05/1.10 band. At times of heavy selling pressures on the EUR (as last week, and potentially post-FOMC this week), the fragility of EUR/CHF levels revives expectations of further negative rates. The euroswiss futures gap opened at 100.850 today as traders’ price in a potential rate cut. We expect the SNB to keep its rates unchanged on Thursday’s quarterly policy meeting (Mar 19th): the sight deposit interest rate at -0.75%, the 3-month libor band at -0.25% / -1.25%.
Fortunately however, USD/CHF holds ground above 1.00 on sustained USD appetite on hawkish Fed expectations. The Fed starts its two-day meeting today and is expected to remove its call for “patience”. If this is the case, the divergence between the Fed and the SNB should help to direct capital toward more rewarding USD assets immediately. Should the Fed prefer to remain “patient” before the first FF rate hike, it will only increase the probability that the so-expected announcement happens at next meeting. We are already in this spiral of hawkish expectations. There is limited and short-lived USD downside in case of disappointment post-FOMC. Therefore USD/CHF should keep on trending higher following its pre-January 15th path. The 3-month 25-delta USD/CHF risk reversal have crossed in the positive territories since mid-March (above 40 points currently) as option markets turn put on Swissy verse the US dollar.
EUR/CHF tests SNB's implicite lower band
The Risk Today
Luc Luyet
EUR/USD is trying to bounce near the 1.0500 psychological support. Hourly resistances can be found at 1.0684 (12/03/2015 high) and 1.0907 (09/03/2015 high). An hourly support lies at 1.0458. In the longer term, the symmetrical triangle favours further weakness towards parity. As a result, any strength is likely to be temporary in nature. A strong resistance stands at 1.1534 (03/02/2015 high). Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support).
GBP/USD has broken the key supports area between 1.4952 (23/01/2015 low) and 1.4814 (09/07/2013 low). The short-term technical structure is negative as long as the hourly resistance at 1.4902 holds. Another resistance can be found at 1.5027. An hourly support lies at 1.4700 (13/03/2015 low). In the longer-term, the break of the strong support at 1.4814 opens the way for further medium-term weakness. Strong supports stand at 1.4231 and 1.3503. A key resistance can be found at 1.5552.
USDJPY USD/JPY is consolidating below the key resistance at 121.85 (see also the long-term declining channel). Supports can be found at 120.61 (09/03/2015 low) and 119.38 (03/03/2015 low). A major resistance stands at 124.14. A long-term bullish bias is favoured as long as the key support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 124.14 (22/06/2007 high) is favoured.
USD/CHF is consolidating after its recent sharp rise. Hourly supports can be found at 0.9982 (12/03/2015 low) and 0.9825 (09/03/2015 low), whereas an hourly resistance lies at 1.0129. A strong resistance stands at 1.0240. In the longer-term, the bullish momentum in USD/CHF has resumed after the decline linked to the removal of the EUR/CHF floor. A test of the strong resistance at 1.0240 is likely. A key support can now be found at 0.9374 (20/02/2015 low, see also the 200-day moving average).
