The Swiss National Bank met to discuss monetary policy. After the meeting ended, here were some of the key points:
– The SNB is holding the LIBOR between 0% and 0.25% (since 2009).
– There are some upward revisions to 2014’s growth forecasts: “As a result of the comprehensive revision of the national accounts, the reported figures for previous quarters are higher, and therefore GDP growth for the current year should also be somewhat higher than assumed in September, by 1.5–2%. ” (From the SNB Statement)
– The SNB lowered its Inflation forecast for 2014, 2015, and 2016. “The SNB has once again adjusted its conditional inflation forecast downwards compared to
the previous quarter. Above all, the appreciably lower oil price will push inflation into
negative territory during the next four quarters. Over the medium to long term, persistently
low inflation across the globe and the even weaker outlook for the euro area economy will
dampen inflation in Switzerland.” (From the SNB Statement)
(source: SNB Statement)
– The SNB reaffirmed that it will defend the cap on the CHF. Part of this effort will be to hold EUR/CHF above 1.20. “the SNB will continue to enforce the minimum exchange rate with the utmost determination. It is prepared to buy foreign currency in unlimited quantities for this purpose”
CHF Reaction: The statement was pretty much in-line with expectations. While the SNB affirmed that it is ready to intervene, it did not reveal whether it did or not. We saw some CHF-buying after the SNB statement, but it was most apparent in EUR/CHF.
The 4H chart shows that after EUR/CHF has been drifting in December after the swiss-gold proposal was rejected. While that helped the market respect the 1.20 SNB floor, it doesn’t give the EUR any strength, so EUR/CHF remained sideways at best.
Expecting Stickiness Around 1.20: However, after today’s SNB statement, the EUR/CHF looks poised to threaten the 1.20 low. It should be noted that this is as much a weak euro story as it is a strong swiss story.While an intervention might help EUR/CHF stay above or return above 1.20 if broken, it will not give the EUR/CHF any bullish outlook. We are likely going to see EUR/CHF hover above 1.20 for the period of time that the euro spends in the current downturn (so it can be many months).
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