steve.jarvis's picture

latest on SNB's EUR/CHF 1.2000 floor

Back in September 2011, in response to a massive appreciation of the Swiss Franc (CHF), the SNB issued a strongly worded statement that they would not tolerate an EUR/CHF exchange rate below 1.20.  
The statement can be found here: Swiss National Bank sets minimum exchange rate at CHF 1.20 per euro.

At that time the Swiss Franc was already starting to weaken after surging to an all-time high against the Euro at 1.0071 in August 2011, and on the back of their bearish Swiss Franc / bullish Euro statement the exchange rate continued to recover to as far as 1.2467 over the following 4 to 5 weeks, before reversing.

Having seen such a significant recovery in the EUR/CHF exchange from 1.0071 to 1.2467 in only 2 months, a reversal to partially retrace the advance then kicked in and the 1.20 line was put under immense strain between April & August 2012.  However, the SNB did successfully defend that level, which might otherwise have seen EUR/CHF fall back to around the 1.10-1.15 area had they not done so.  From that 5 month floor around 1.2003-07 in 2012 a recovery phase commenced, eventually peaking at 1.2467 in May 2013.  

Since that time there has been a steady succession of lower tops & bottoms develop on the EUR/CHF chart and the 1.2000 line is now within close range again.  At this stage, the chart remains bearish and using normal chart analysis a move well through 1.2000 would appear likely.  For instance, we have a minimum extension target around 1.1954-60 (based on two measured moves) with a further measured move down at 1.1917 and an 11 month support line currently at 1.1887 (as at 6th November), falling around .0028 per month.

 

Above chart. EUR/CHF 6 month daily chart.  Click for a larger pop-up image.

The SNB have restated their intentions to defend the 1.2000 line but their ability to do so indefinitely could be threatened by the outcome of a Swiss referendum on 30th November.  This referendum is to vote on whether the SNB should hold 20% of reserves in Gold. This is not something that either the Swiss Government nor the SNB supports, but it is being put to the public vote.  If the result goes against the Government then it would not only have a potentially huge positive effect on an ailing Gold price, but also weaken the SNB's ability to hold EUR/CHF over 1.2000 in the event of there being a big player positioned the other way (in a similar sort of way to Sterling's departure from the ERM in 1992).

We will keep a watch on news from Switzerland for updates on which way the referendum may go, but meanwhile this WSJ article is well worth a look.  The latest poll I have seen suggests 38% currently in favour, 47% against and 15% undecided. As we saw with the recent Scottish referendum, voting intentions can change quite quickly and have an affect on the FX Market.