Traders Testing the SNB’s Resolve as EUR/CHF Falls

Traders Testing the SNB's Resolve as EUR/CHF Falls

SNB Monetary Policy Decision

The Swiss National Bank met to make monetary policy decisions during the 9/18 European session. As expected, the SNB kept its libor rate in the 0.0%-0.25% band. the SNB noted deteriorating economic conditions domestic and abroad, lower inflation expectations, and the fact that the “Swiss franc is still high”.

In its press release, the central bank noted: ” At an annualised rate of –0.2%, second-quarter GDP growth in Switzerland was distinctly lower than forecast in June. Despite having expected a rate of around 2% in June, given the current data, the SNB now puts this year’s growth rate at only just below 1.5%. ” (SNB Press Release)

inflation forecast SNB 9/18

(Source: SNB Press Release; click to enlarge)

Recently, the Swiss Franc has indeed ran high, and the EUR/CHF has been approaching the 1.20 floor, that the bank vowed to hold EUR/CHF above. Thomas Jordan, president of the Swiss National Bank reiterated, “We’ll enforce the cap with utmost determination…we’re prepared to take further steps immediately if necessary”.

This SNB statement, with the downgrade in economic and inflation forecasts, and the reassurance of intervention against further CHF-gains, sound dovish. One would expect this to have a negative effect on the CHF, and positive effect on the EUR/CHF. One would be wrong at least about the immediate reaction. The market seems to want to test the resolve of Thomas Jordan and his colleagues in defending the 1.20 floor.

EUR/CHF completed a double bottom in early September, and was consolidating just above the double bottom but below 1.2118 . Then, after the SNB event risk, it failed to cross the 1.2118 resistance again, and retreated sharp back to test the double bottom.

EUR/CHF 4H chart 9/18
eurchf 4h chart 9/18

(click to enlarge)

Note that price is sharply bearish and is breaking below the 200-, 100-, and 50-period SMAs in the 4H chart. It looks poised to invalidate the previous price bottom and test that 1.2044 handle. Below that, the market will be calling Jordan’s bluff if it wants to extend toward the 1.20 handle. I wouldn’t bet against the central bank. In fact, we might consider putting in positions around 1.20 to hold, understanding that even though 1.20 is defended, it might take months before we can crack out a mere 200 pips or so – the monthly volatility has been even less, barely above 100 pips in the recent months.

EUR/CHF Monthly chart 9/18
eurchf monthly chart

(click to enlarge)

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at