08:29, 18 December

Keeps Within Reach of 1 as SNB Keeps Expansive Policy

In the last week the USDCHF has rallied higher after dropping to its lowest levels in several weeks, moving back up towards 1 and parity, although it has eased again in the last 24 hours. In the middle of last month the USDCHF fell reasonably sharply from an 18 month high above 1.01 down through the key 1 level and to the low around 0.9860. Throughout September and October the USDCHF moved very strongly from a six months low below 0.9550 up to the highest level in 18 months just above 1.01. After the high it spent a couple of weeks consolidating above the parity level enjoying some reasonable support from the 1 level.

Parity remains a key level and is likely to continue to influence price action, given how much it has remained within touch of this level over the last year. 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. 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.

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.

Last week the Swiss National Bank (SNB) kept its ultra-loose monetary policy in place, citing the "fragile" exchange rate situation as a reason to maintain its expansive course into its fourth year.  The central bank kept the negative interest rate of -0.75% in place that it charges on deposits held by commercial banks above a certain level, and said it remained ready to intervene in the foreign exchange markets if needed.  In an interview with CNBC, SNB president Thomas Jordan said that global growth was weighing on the Swiss economy.  "The global economy is weaker than six months ago and the same is true for Switzerland. But in the last half of 2017 and first half of 2018 we had extraordinary growth and now we are going back to a more normal level of growth," he said.President Jordan added that the SNB is expecting Swiss growth across 2019 to be around 1.5%.Jordan said that either buying of foreign exchange or a further reduction of rates could be used to depress the franc's value, if necessary.  "We ready to intervene in the foreign exchange market in order to reduce the pressure on the Swiss franc," he added.Jordan told CNBC that it was clear the Swiss franc remained "highly valued" and that the negative interest rate would remain in place to try to repel any rush of investors in the currency.