SNB rate decision June 18th 2009

At the March SNB meeting the SNB announced that it would intervene to prevent further CHF appreciation versus the EUR to counter the risk of deflation and to combat the dramatic deterioration in the Swiss economy. Since the March SNB policy meeting EUR/CHF has been holding above 1.5100. The SNB appears satisfied with the stability of the EUR/CHF cross. This may mean the SNB will tone down its intervention rhetoric. Note in the graph below the big EUR/CHF rally from 1.4500 to 1.5300 after the SNB intervened to buy EUR in March and the relative stability of the cross since.

The SNB also announced at the March meeting an asset purchase plan to buy private bonds to increase liquidity. The trade will be looking for any sign at the June meeting that the SNB plans to ramp up intervention or expand asset purchases. In light of the sharp drop in Swiss inflation the SNB may have little choice but to expand it asset purchase plan. The SNB will announce its semi annual economic forecast Thursday. The SNB has forecast that the economy will contract by 3 % this year. Downward revisions are expected. The SNB will also publish its bank financial stability report Thursday. If the SNB reaffirms commitment to intervene to weaken the CHF, the CHF will may weaken and price volatility could spike. Expansion of quantitative ease would be a short term negative for the CHF. Expect key USD/CHF support at 1.0590 the June 2nd low with resistance at 1.1010 the 61.8% retracement of 10590 -1.1265 range.