Date: 12 Jun 2019

The Swiss National Bank will decide on interest rates this week, although no major policy changes are expected, SNB policymakers may raise concerns about the rapid appreciation of the Swiss franc currency against the euro and U.S Dollar. The Swiss franc currency has been a natural safe-haven for investors as the global economic climate worsens and the Sino-U.S trade war simmers on.

The Swiss franc traded at a twenty-two month high against the euro currency last week, while the Swiss franc is rapidly appreciating against the U.S Dollar since mid-April. The Swiss economy is heavily reliant on its export sector, particularly luxury goods, leaving the Swiss National Bank in a precarious position ahead of Thursday’s interest rate decision and monetary policy statement.

The SNB Chairman Thomas Jordan is likely to reiterate that the central bank stands ready to act if the Swiss franc continues to appreciate, sending market participants a clear message that the Swiss currency has its limits of appreciation. It remains to be seen if verbal warnings will be enough to fight-off speculators, particularly given that the Federal Reserve may soon be cutting interest rates and the ECB have just announced the details of another round of refinancing for European financial institutions.

Alongside the Bank of Japan, the Swiss National Bank has tested the limits of central bank policy, as the central bank adopted a negative interest rate policy, which has largely had only a limited effect on the Swiss franc. With Swiss interest rates at -0.75 basis points and the domestic economy performing reasonably well, verbal intervention may be the central bank’s only tool at this stage.

 

EUR/CHF Daily Mountain Chart| Source: ActivTrader

EUR/CHF Daily Mountain Chart| Source: ActivTrader

 

The daily time frame chart currently shows a large head and shoulders pattern, with the EUR/CHF pair probing neckline support. A break below the 1.1200 level could trigger substantial weakness in the pair, with the 1.1050 and 1.0980 levels the initial bearish targets. Key upside resistance for the EUR/CHF pair is currently found at the 1.1300 and 1.1355 areas.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

*The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication. All information has been prepared by ActivTrades PLC (“AT”). The information does not contain a record of AT’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of futures performance. AT provides an execution-only service. Consequently, any person acting on the information provided.