Forex News and Events
After a few months of uncertainty during which investors tried to determine whether the SNB was actively defending the implicit target of 1.05-1.10 band in EUR/CHF, traders have begun to challenge the SNB by pushing the Swiss franc slowly but surely toward the parity. Since February 20, EUR/CHF lost more than 5%, from 1.0811 to 1.0236 on April 21. The market quickly realized that the 1.05-1.10 band was more a trading floor rumour than a reality. Yesterday, the SNB surprised the market by announcing stricter exemption rules as the institutions associated with the Confederation, such as the pension fund of the Confederation or the pension fund of the SNB, are no longer exempt of negative interest. Consequently, only the account holders of the national social security system (AVS/IV/EO, IV/AI and EO/APG) are still fully exempt. However, this decision doesn’t change the rule for domestic banks as the “20 times minimum reserve requirement” still holds. Total sight deposits of domestic banks at the SNB increased of CHF1.4bn over the previous week while 20x the minimum requirement corresponds to CHF290bn.
What is next?
The SNB is running out of solution and is struggling to stop the appreciation of the Swiss franc as the ECB buys EUR60bn worth of sovereign bonds every month, in an attempt to boost Eurozone’s economy, which has drag the euro lower. The most powerful tool left is the exemption threshold; so far it is set to 20 times the minimum reserve requirement but the Bank could lower this threshold to increase the sight deposits exposed to negative rates. This move would force domestic banks to transfer these costs to retail deposits or to start chasing higher returns abroad. Other solutions would be to lower interest rates further into negative territory or to intervene in the foreign exchange market. We believe that the last two solutions are unlikely as the recent monetary actions suggest that the SNB is reluctant to increase massively its balance sheet. A solution may come from the Eurozone. In case of Greece and the Eurozone finally reach an agreement, foreign investors may stop avoiding European assets.
All in all, we don’t think that yesterday’s move will fundamentally change the EUR/CHF situation, especially as the resulting policy has marginally changed. The main goal was to remind traders that the SNB is not pleased by the current valuation of the Swiss franc. The focus, therefore, remains on the Greek situation and ECB bonds buying program. We expect the EUR/CHF to erase previous gains and decline toward parity.
The Risk Today
Luc Luyet
EUR/USD is moving broadly sideways since the second half of March. Monitor the hourly support at 1.0660 as a break would validate a short-term succession of lower highs and lower lows. Another hourly support lies at 1.0521. Hourly resistances stand 1.0801 (22/04/2015 high) and 1.0849 (17/04/2015 high). In the longer term, the symmetrical triangle favours further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. A strong resistance stands at 1.1114 (05/03/2015 low). Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support).
GBP/USD continues to rise and is now close to the key resistance area between 1.5137 and 1.5166. Hourly supports can be found at 1.4857 and 1.4701 (15/04/2015 low). In the longer-term, the break of the strong support at 1.4814 opens the way for further medium-term weakness towards the strong support at 1.4231 (20/05/2010 low). A break of the key resistance at 1.5166 (18/03/2015 high) is needed to invalidate this scenario. Another key resistance stands at 1.5552 (26/02/2015 high).
USD/JPY has moved above the hourly resistance at 119.75, confirming an improving buying interest. Other hourly resistances are given by the declining trendline (around 120.46) and 120.84. An hourly support lies at 119.35 (22/04/2015 low), while a key support stands at 118.18. A long-term bullish bias is favoured as long as the strong 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. A key support can be found at 118.18 (16/02/2015 low), whereas a key resistance stands at 121.85 (see also the long-term declining channel).
USD/CHF has bounced sharply near the key support area between 0.9491 and 0.9450 (see also the 38.2% retracement). Hourly resistances can now be found at 0.9712 (16/04/2015 high) and 0.9863. An hourly support lies at 0.9622 (intraday low). 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. As a result, the current weakness is seen as a countertrend move. Key supports can be found at 0.9450 (26/02/2015 low, see also the 200-day moving average) and 0.9170 (30/01/2015 low).
