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EUR/CHF – Where Now?
The action in EUR/CHF today was unprecedented as the SNB simply walked away from the peg and allowed the franc to appreciate by nearly 20% in an instant. The cross is now trading at parity and the key question is where now given the massive adjustment that has already occurred. Although it is tempting to believe that the pair will slide further, the most likely scenario is consolidation and some short covering rally as the event of today have grossly exaggerated the balance between the two pairs. First and foremost the sharply negative rate on the Swiss bank deposits means that investors will now lose 75bp to carry alone. Few investors will be willing to accept the slow depletion of their capital for a long period of time. Secondly the ECB may surprise the market by not doing full QE at its meeting next week. Any “positive shock” on the euro could trigger a pretty vicious short covering rally in the pair. That is why short trades at this point should be considered with care.
Technically there is simply no credible support points, but the parity level seems to be a psychological magnet and will be support for now.