CHF: SNB may change policy
By Mark Jensen
The Swiss National Bank will meet on Thursday, Sep. 18. Some market players believe that the regulator will announce a negative deposit rate.
Swiss franc has recently risen to almost 2-year highs versus euro: last week EUR/CHF touched 1.2043 – remember that the SNB has pledged to keep the pair above 1.2000.
The problem is that the European Central Bank is on the verge of quantitative easing. Overnight rates in the euro area have dipped into negative territory, while Swiss overnight rates are above zero at 0.01%. This means that the rate differentials are in favor of CHF. In addition, franc was in demand as a safe haven. Obviously, the SNB isn’t pleased about the situation like this: the euro is likely to weaken, and if EUR/CHF falls to 1.2000 and attempts to go lower, the SNB will have to intervene.
According to Reuters, the SNB Chairman Thomas Jordan dropped broad hints when he said the bank was ready to intervene in the foreign exchange market to defend the cap and could take further measures to ensure price stability. As the SNB’s benchmark rate is already near zero, the analysts say that the options for the central bank include lifting the minimal level for EUR/CHF from 1.20 to 1.25 or imposing negative deposit rates. the latter looks more likely at this stage. The pressure on the SNB is higher than before because the latest Swiss data shows economic growth slowing in Q2.
How to trade?
EUR/CHF recovered to the 1.2100 area on the speculation that the SNB will take steps to weaken franc and push this pair higher. However, analysts warn that unless the central bank makes a really big move the euro’s upward correction will be limited. Resistance is at 1.2150, 1.2188 (200-day MA) and 1.2235. If the SNB does nothing EUR/CHF will be vulnerable for further declines.