SNB introduces negative rates, FOMC drops "considerable time"

Market Brief

The SNB introduced negative interest rate (-0.25%) on sight deposits at European open today amid persisting pressure on EUR/CHF’ 1.20 floor, said ready to take more measures if needed. EUR/CHF spiked to 1.20974 post-announcement. We believe that the policy action will temporary ease the selling pressures on EUR/CHF, however more steps will certainly be needed to defend the floor if the ECB moves toward a full-blown QE by the first quarter of 2015. USD/CHF hit fresh year high of 0.9848. The MACD should step in the bullish zone for a daily close above 0.9810, suggest extension of October-December bull-trend.

The FOMC dropped the “considerable time” rhetoric as mostly expected, yet maintained its cautious stance regarding the timing of the first FF rate hike. FOMC Chair Yellen said “the committee considers it unlikely to begin the normalization process for at least the next couple of meetings”, therefore giving itself the flexibility needed before taking any action in hurry. The Asian equity markets traded in green post-FOMC. The US 10-year yields did little, still below 2.15% in Asia.

EUR/USD sold-off to 1.2321 post-FOMC, to 1.2278 post-SNB. The positive trend got a clear hit over the past two sessions. Option barriers trail below 1.2300 for today expiry, a close below 1.2242/47 (MACD pivot & Dec 8th low) should confirm fresh wave of EUR sell-off. EUR/GBP steps back below 0.79000. First line of support stand at 0.78325 (October-December ascending base).

JPY-crosses were mostly better bid in Tokyo amid the GPIF and other public pension funds announced net sell of 2.8 trillion yen JGBs in Q3 and purchase of 600.5 billion Yen equities and 2.2 trillion yen of foreign securities. USD/JPY advanced to 119.01. The sentiment remains skeptical with attempt to cross over the Ichimoku conversion line (118.71). Option bets are supportive above 117.55.

GBP/USD fell to 1.5541 (fresh year low) post-FOMC amid failure to pick-up momentum after slower CPI (1.0%), slight deterioration in jobless rate (6%) and the BoE minutes. Due today, the UK retail sales are expected to have soften in November, which may be the final push back to Cable’s broad bear market. Option barriers trail below 1.5615/40 for today expiry.

Else, the USD/RUB 1-month implied volatility advanced to 67.80%, the pair dropped back to 58.1249 before President Putin’s conference today.

Today traders focus on Swiss November Trade Balance, export & Imports m/m, Swedish Consumer and Manufacturing Confidence, IFO’s December Business Climate, Current Assessment and Expectations in Germany, UK November Retail Sales m/m & y/Y, Euro-zone October Construction Output m/m & y/y, Italian October Current Account Balance, US December 13th Initial Jobless Claims & December 6th Continuing Claims, US December (Prelim) Services & Composite PMI, US December Philadelphia Fed Business Outlook and US November Leading Index.