Renewed upside pressure on the CHF

Forex News and Events

SNB: Verbal intervention or more in pipeline? (by Yann Quelenn)

The EURCHF is now back towards 1.0900 and downside pressures are still very significant for the pair. SNB President, Thomas Jordan has warned that he may further ease policy, yet, the central bank does not have much room as interest rates are already very deep into negative territory and the peg has proven to be a very expensive measure. As a result, Jordan has warned that exemption limits from negative interest rates could be reduced.

He also added that there is no current plan to change ongoing monetary policy, however, we consider this to be more of a verbal intervention. Jordan is trying to lower expectations on the Swiss Franc with the threat of any action within the central bank’s arsenal in the event of a CHF appreciation. However, the SNB does not have much room to act and instead is trying to drive down expectations on the Swiss Franc in order to weaken the currency.

It is also clear that through massive quantitative easing the current ECB monetary policy is adding huge upside pressures to the Swiss currency. Moreover, negative deposit rates from the ECB are making Swiss negative interest rates less efficient. Last but not least, there are growing concerns about Eurozone cohesion. Brexit as well as other possible issues such as Greek solvency problems are giving Switzerland back its safe haven status. The SNB, is hoping for the best, but is in a difficult situation. The ECB meeting, on March 10, will prove whether their current strategy will help the Swiss Franc to resist a continued weaker EUR much longer.

G20 Communique lack bite (by Peter Rosenstreich)

As we had expected the G20 meeting in Shanghai ended with no tangible results. Despite growing threats to the global economy the ability to find consensus was a barrier unsurmountable at this point. In addition, disagreement as to the correct response, highlighted by Germany’s Finance Minister Wolfgang Schaeuble comments “fiscal as well as monetary policies have reached their limits” limited the prospective effectiveness of the meeting. Earlier speculation of a coordinated response which might have included foreign exchange or extraordinary stimulus plan failed to materialize. The failure to agree on new fiscal or monetary policy measures clearly disappointed investors, as trading shifted to a risk-aversion trading pattern. USD was also supported due to the better than expected US data and repricing of Fed interest rate hikes. With only bark and no bite the strong worded G20 communicate stated "we will use all policy tools - monetary, fiscal and structural - individually and collectively," to strengthen global demand and increase confidence. Yet with no details of potential policy the declaration fell on deaf ears. This emphasis on “all policy tool” indicates that weight on monetary policy cannot be the only central bank strategy. In the communique, the group reiterated their prior statement regarding foreign exchange markets to "refrain from competitive devaluations and we will not target our exchange rates for competitive purposes". The statement reaffirmed to “consult closely” in order to reduce "excess volatility and disorderly movements in exchange rates.” Perhaps the most interesting and market relevant take-away, was the G20 warning that a Brexit would be a “shock” to the world economy. Initial response was viewed as influential backing for the “in” vote. However, news that UK officials had 'instigated G20 Brexit warning' might take some of the credibility way from the comment. We remain bearish on GBP and would short GBPUSD on recovery rallies.

GBP/USD - Bearish Momentum.

The Risk Today

Yann Quelenn

EUR/USD is pausing above support area at 1.0900. Yet, the short-term technical structure still suggests a further bearish move. Hourly resistance lies at 1.1068 (intraday high) and hourly support is given at 1.0905 (03/02/2016 low). Expected to show continued weakness. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD keeps on pushing lower. Hourly support lies at 1.3842 (intraday low) and hourly resistance is given at 1.4043 (26/02/2016 high). The technical structure suggests further decline. The road is wide open to stronger support at 1.3657 (11/03/2009 low). The long-term technical pattern is negative and favours a further decline towards the key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY is trading mixed in the short-term and is clearly negative in the medium-term. Hourly resistance can be found at 114.00 (intraday high). Stronger resistance is given at 114.91 (16/02/2016 high). We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).

USD/CHF is trading below 1.0000. Hourly support is given at 0.9847 (16/02/2016 low) and hourly resistance is given at 1.0003 (22/02/2016 high). Expected to see further weakening in case the psychological resistance at 1.000 is not broken. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.

Resistance and Support: