The Swiss National Bank (SNB) shook the forex markets today with an emergency meeting that resulted in its first negative libor rate (between -0.75% and -0.25%). Furthermore, it gave up defending the 1.20 floor for EUR/CHF.
The SNB imposed a floor on EUR/CHF in 2011 and has been defending it since. As the euro continues to slide, it has become difficult to intervene. Still the announcement came as a surprise and the markets reacted by flooding the CHF, and obliterating the EUR/CHF. We are also seeing the USD Index retreat.
The EUR/CHF has been trading around 1.20 for a while now. The volatility has been very low.
Daily ranges, were 20-30 pips. But just a few hours after the SNB’s surprises, it fell from around 1.20 to somewhere around parity (different retail platforms show different prices). It looks like it is going to settle around parity (1.00) heading in to the 1/15 US session.
With the SNB’s support, the euro also plunged, continuing its recent downtrend.
EUR/USD 4H Chart 1/15
(click to enlarge)
The EUR/USD consolidated during the 1/14 after poor US retail sales data. But the euro was still weak and the downtrend was intact. Today’s removal of the SNB-floor opened up more euro-selling, and the EUR/USD dipped below 1.16 before buyers came in. It still looks poised to “chew up the tail” and settle down to the 1.16 area in the very short-term.
The SNB surprise opened up the floodgate for CHF-bids. The CHF is a “competitor” of the USD in that they both attract safe-haven flow. With the flow going to the Swiss Franc, the USD should retreat. We are seeing evidence of this transfer from USD to CHF as the USD/CHF collapsed.
While the USD fell sharply against the CHF, it is still in a consolidation mode in general against the majors.
The US Dollar Index shows that it has been consolidating below 92.50 and above 91.70 in the past week or so. It has stalled during the 1/14 session after the poor US retail sales data, and shook up and down after the SNB’s announcement.
It does look like it will be selling for a price top as we get into the 1/15 US session, with price falling below 91.70.
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