USDCHF

08:42, 13 November

Settles Above 1 as SNB Urges Patience

The USDCHF has moved very strongly in the last couple of months from a six months low below 0.9550 up to its highest levels in 18 months just above 1.01. In the last couple of weeks it has consolidated above the parity level enjoying some reasonable support from the 1 level. The first couple of weeks of its recent surge higher was quite pronounced as it moved strongly towards the key 1 level. For an extended period through June, July and August the USDCHF traded in a narrow range just below parity as it met stiff resistance from that level. The USDCHF did push through 1 for a short period reaching a 12 month high above 1.0050 around mid-July, which has recently been passed.
 

Parity remains a key level and is likely to continue to influence price especially now that the USDCHF has been able to push higher and move through this level. Prior to the multi-month consolidation in the middle of the year, the USDCHF had moved very strongly from multi-year lows below 0.92 in February up to around parity in early May. The surge higher was quite pronounced between mid-April and mid-May which saw the pair move 400 pips.

Should the USDCHF decline from its present levels, the next potential key level will be 0.9450 as this played a role earlier this year, providing resistance on several occasions, and may now provide some support. Price was rejected swiftly above it and forced down lower, although it eventually and slowly moved higher to begin its recent surge higher. The 0.9450 level also propped up the pair strongly in July / August last year and this level is likely to become relevant again should the USDCHF decline further.

According to Swiss National Bank (SNB) Governing Board Member Andrea Maechler, it is a little premature for the SNB to be considering tightening monetary policy even a decade after the outbreak of the global financial crisis.She added that robust economic growth in many parts of the world has prompted some central banks to start gradual tightening steps.“For the SNB, though, it is still too early to contemplate taking such action... Although economic developments are favourable, inflationary pressures remain low. Moreover, the Swiss franc remains highly valued and the situation on the foreign exchange market is still fragile,” she said.Maechler noted that despite an economic upturn, inflation has stayed low in most advanced economies despite.“Switzerland too has seen a trend towards faster price adjustments over the last few years. Thus, shocks such as strong appreciation or depreciation of the Swiss franc could feed through to inflation more rapidly in the future,” she said.She urged money market participants to ensure a smooth transition from the Libor reference interest rate, which is being phased out after manipulation scandals.“I would like to emphasise that the SNB retains its ability to steer interest rates even without the Libor. For instance, it is currently doing so by means of the negative interest rate on the sight deposits which the banks hold at the SNB,” she said.