The SNB Gave EURCHF its Heart, but EURCHF Gave it Away

“Last Christmas I gave you my heart

But the very next day you gave it away

This year to save me from tears

I'll give it to someone special”

- Wham!

No doubt had your fill of the song “Last Christmas” by the iconic 1980s UK musical duo Wham! by now. The song is told from the perspective of a spurned lover who was rejected one day after finally getting up the courage to profess his devotion to his girlfriend the previous year.

The Swiss National Bank (SNB) probably feels similarly cheated heading into this Christmas. Last week, the central bank finally pulled the trigger and cut its benchmark interest rate to negative (see my colleague Kathleen Brooks’ report, “EURCHF: After the SNB, What Next?” for more on this landmark decision). After briefly spiking to 1.2100 in the wake of the announcement, EURCHF returned to its familiar range in the lower 1.20s. In fact, EURCHF traders were even more cruel than the song’s antagonist: the EURCHF spike lasted only a few hours, far less than the day of bliss enjoyed by the singer.

The SNB’s policy was designed to fight off deflation and stimulate Switzerland’s moribund economy, but without a corresponding drop in the Swiss franc, these goals will be difficult to achieve. Indeed, if the European Central Bank embarks on its own sovereign QE program next month, as many analysts anticipate, the SNB may be forced to cut interest rates further or introduce a QE program of its own.

From a technical perspective, EURCHF continues to find resistance at its 100-day MA (currently at 1.2063), so it’s difficult to be constructive on the pair unless it can break conclusively above level. Meanwhile, the pair’s RSI indicator continues to find resistance at the “60” level, suggesting that the overall downtrend remains intact. While the SNB’s floor at 1.20 floor appears safe in the short term, further easing from the ECB early next year could increase pressure on this barrier, so prudent traders may want to wait for a clearer signal before looking to go long the pair off that support level.

Source: FOREX.com