EUR/CHF Tests 1.0950 Resistance
Swissquote Bank Ltd | Aug 29, 2016 07:17AM ET
Forex News and Events
SNB says no to “Helicopter Money”
In an article published yesterday in Swiss newspaper Sonntagsblick, the Swiss National Bank’s Maechler provided basic reaffirmation of the central bank’s current policy mix, while rejecting potentially more extreme measures. Maechler commented that SNB members remain committed to negative interest rates and that they believe that the use of NIRP has successfully protected the CHF from further overvaluation. In very clear terms, she ruled out the use of “helicopter money” stating it as a “no-go.” Moreover, she suggested that for the SNB to give money to the government would be illegal. Perhaps the most interesting insight was the SNB's unconditional rejection of monetizing government debt. Evidence that Swiss economic conditions are deteriorating is coming in fast and heavy. There is clear proof that the overvalued CHF has reversed the temporally encouraging inflation outlook. However, expectations for further easing of monetary policy in the UK and ECB and mounting geopolitical risks will likely increase demand for safe-haven assets (even a rate hike in the US will provide uncertain directional FX flows).
As highlighted by Maechler, the SNB cannot influence the international environment, which puts the SNB in a purely reactive position. The central bank’s use of negative interest rates has already come under fire by insurance companies and pensions funds and is likely to find more critics as banks begin to pass the cost to private savers (which they have been reluctant to do). It is unclear why then, given the expected buying pressure on CHF and the limited maneuverability in NIRP, that more extreme measures are not on the table. We suspect that despite Maechler’s defiant, some form of “helicopter money” is actually closer to reality than this interview would have us believe. Remember, Switzerland's basic income referendum gathered 20% of the vote and SNB members were restating commitment to the 1.20 floor just days before abandoning the exchange rate policy. In the short-term we anticipate CHF will find buyers with EUR/CHF targeting 1.0863 (base & 55dma).
Hawkish comments from Jackson Hole
Since Jackson Hole, the US dollar has been recovering in the hope that rates will be raised. Janet Yellen’s hawkish message has pushed the odds of a September hike up to 42%. Yellen also mentioned that the Fed has all the tools to support the American economy for the next downturn.
The most important information provided at this meeting was the fact that the Fed is considering to buy a broader range of assets to stimulate the economy. Even if Yellen declared that the Fed is “not actively monitoring these options”. Our main point of view now is that the Fed needs to fight for its credibility and while we believe that a rate hike is possible (although more likely in December than September), a QE may be announced in the interim.
Get The News You Want
Currency-wise, the dollar is appreciating and should continue to do so as long as rate hike expectations abound. For now, EUR/USD is back below 1.1200 and should continue to head south until at least the September meeting. The only winner from this meeting was Japan, with the USD/JPY rising back above 102.00.
EUR/CHF - Breaking Resistance At 1.0945.
The Risk Today
EUR/USD has sharply declined. The pair has broken the uptrend channel Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). Hourly support at 1.1245 (24/05/2016 low) has been broken. The road is wide-open for further decline. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.
GBP/USD is still trading above 1.3000. Hourly resistance can be found at 1.3279 (26/08/2016 high) and 1.3372 (03/08/2016 high). Hourly support can be found at 1.3024 (19/08/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY is approaching hourly resistance given at 102.83 (02/08/2016 high). Strong support is given at 99.02 (24/06/2016 low). Expected further consolidation. We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF has now totally erased former resistance at 0.9659 (09/08/2016 high) and has also broken resistance at 0.9775 (14/08/2016 high). As expected the road was wide-open for further strengthening. Hourly support can be found at 0.9522 (23/06/2016 low). Expected further bullish move. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
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