CHF: the SNB fails to stem appreciation

Everybody loves a trier, the Swiss National Bank (SNB) once again tried to talk down the Swissie at its meeting earlier on Thursday but the market didn’t listen and the Swiss franc is stronger across the board today.

The SNB maintained rates at 0%, pledged to defend its 1.20 peg in EURCHF and lamented the continued strength of the currency. The SNB referenced the ECB’s decision to cut rates in November and said it put them in a tricky situation, as rates are already at the zero bound. This leaves the Swissie as the authority’s only tool to try and manage monetary policy.

Some highlights from SNB Chairman Jordan’s speech include:

“The Swiss franc is still too high”
“Should it become necessary, we will … enforce the minimum exchange rate by buying foreign currency (EUR) in unlimited quantities.”
No inflation risks can be identified for Switzerland in the foreseeable future.
Indicators suggest that growth will weaken temporarily in Q4.
Growth expected at 1.5% - 2% in 2013 and 2% in 2014.
Downside risks “still prevail” for Switzerland.

The SNB is between a rock and a hard place - a strong currency is keeping the threat of deflation alive, however the outlook for growth is quite strong, particularly when compared to its European neighbours.

At this stage it is difficult for the SNB to justify any intervention in the FX market to limit Swissie strength without risking the wrath of the international community, hence the SNB is likely to be in wait and see mode for some time yet.

The interest rate outlook and CHF

The market expects the SNB to refrain from hiking rates until late 2016, around the same time as the ECB is expected to hike rates. There was no change in the market’s expectations for SNB rate hikes after this meeting, which could be one reason why the Swissie has been strengthening today.

The technical view:

EURCHF: this cross sold off sharply last week, there could be room for a short term correction as the RSI is in oversold territory, however, bearish conditions generally remain intact, and the MACD is below the zero line. Short term resistance lies at 1.2255 – a sticky zone from earlier on Thursday, while a close below 1.2200 could open the way to 1.2130- the low from 8th April, then 1.2070 – the low from 2nd January.

USDCHF: This cross has extended losses post the SNB meeting, and is below support at 0.8865 (the 38.2% Fib retracement of the 2011 – 2012 uptrend). A daily close below here would be a bearish development. However, it is looking oversold on the daily RSI, so the near term risk is for a correction. Key resistance lies at 0.8950 then 0.9055 – the 50-day sma. Whether we extend gains further could depend on the outcome of the December FOMC meeting that takes place next week.