EUR/CHF – Good Time to Buy?

EUR/CHF – Good Time to Buy?

EUR/CHF – Good Time to Buy?


Fundamentals

After sitting on their hands for the past 2 months watching EUR/CHF test their floor of 1.20, the Swiss National Bank finally took action this morning by adopting a negative interest rate. Their announcement sent EUR/CHF to a high of 1.2097 but as we have seen in today’s price action fighting the market can be difficult. The rally fizzled by the end of the North American session with the currency pair trading back within its month long range. Strong fundamental factors have driven investors into the Swiss Franc including euro weakness (driven by ECB policy), Russian inflows (from the currency crisis) and a general demand for safe haven assets. Unfortunately for the SNB, the problems that have caused pressure on EUR/CHF are not expected to improve anytime soon. However central banks have deep pockets and the SNB understands the consequences of letting the EUR/CHF peg break. The whole credibility of their currency and monetary policy would come into question if they allowed EUR/CHF to drop below 1.20 by more than a few pips so a lot is at stake. We believe that the SNB will overtly intervene in EUR/CHF if the rate cut does not work which is why we feel it is a good time to buy EUR/CHF between 1.2020 and 1.2040 for a move back towards 1.21.

Technicals

When it comes to EUR/CHF, the 1.20 peg distorts the effectiveness of technicals. Nonetheless, there are certain levels within the EUR/CHF breakout that is important. EUR/CHF needs to be trading above the December 2nd 1.2047 high to have any chance of extending its gains without intervention. If it drops back towards 1.2020, the 1.20 peg could be tested once again but we do not expect EUR/CHF to drop below 1.1990.

Chart Of The Day

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