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ECB rate cut creates complex situation for SNB

Some extracts from ForexLive.com

Says Thomas Jordan.

  • Need to wait to assess impact of ECB rate cut
  • Wasn’t totally surprised by the cut
  • Interest rates will remain low in Switzerland
  • Low rates may lead to property bubble risk which SNB will respond to if necessary
  • SNB monitoring property market which is already in difficult situation

I did wonder about the lack of movement in EUR/CHF yesterday considering that nearly every other euro pair took a hit. It’s either become the forgotten currency or there’s some sneaky SNB support that comes in on risk events.

About EUR/NOK and EUR/CHF

 

Concerning NOK and CHF see my comment:

For the ones do not understand the diverting movements of NOK and CHF.
The ECB rate cut means that ECB economists expected inflation to continue to be low for a prolonged time.
NOK is a risk-on currency that profits on higher rates. Prolonged low inflation in Europe risks a rate cut for NOK, too.
American money market funds often invest in higher yielding currencies like NZD, AUD or NOK.
At the same time US GDP data was good and stock markets weakened. Hence markets anticipated that US investors moved out of the risk-on currency NOK into USD.

EUR/CHF was lower because there is no risk of a SNB rate cut, they are at 0%. Swiss investors might now move out of EUR positions, consequently CHF was stronger. Investments in CHF are far more driven by rich Swiss investors than by American ones, while NOK, AUD and NZD are influenced far more by US investors that seek high yields.

As long has  inflation in Europe goes down, NOK may remain oversold.

Hence, in order to make the EUR/CHF fly you must convince Swiss investors to buy European stocks or MM funds
Details:
https://snbchf.com/chf/history-swiss-balance-of-payment/
Have fun with it, the Swiss investors are quite proud with their economy and negative to the euro zone.

EUR/NOK

12 Comments

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  1. most scandies (especially the nok) was down against the eur yesterday. i am surprised the chf is holding that good…
    do you expect 1.225 to be challenged in the coming days?

  2. I just read from one of my brokers that the in the euro was likely caused by intervention from the czech central bank yesterday. Supposedly they bought between 2 and 5B euros after the rate cut.

  3. Sneaky SNB support on risk events? They are too serious and respectful of free floating currency markets and their currency floating against EUR… :D Next time EURCHF goes down around 1.2150 – 1.2120 I’ll buy a truckload of EURCHF ;) And sell it at 1.2395.

  4. You know what eddie, I though I saw something pop up in the headlines yesterday but in all the hubbub I forgot to go back and check it out.

  5. Hi fxfel. I’d like it too but I can’t see it. If it won’t go down on a rate cut there’s not much chance at all. Longer term, if inflation continues to fall that’s going to put downside pressure on the euro. If it looks like it might get out of hand then we could see some safety flows going into the swissy.

  6. EUR/CHF goes down and EUR/NOK up…much up…doesn’t make any sense…if you take a look at those too pairs, you can see that the NOK is oversold, compared to CHF and the current level is the same against to the EUR as it was before the euro zone fiscal crises…and that doesn’t make anysense….

  7. Ryan, the more I look at my EURCHF chart, the more I convince myself that the SNB has indeed quietly raised the level they are actually defending. To 1.2120 back in January (see spike low in February and bottom in April), then to 1.2220 in April(see spike low in June and bottom in September). They may be trying to raise the level to 1.2280…. but this may prove difficult in the current circumstances.

  8. I’d start loading up on Euro/Swissie at 12250 too. I suppose a limit order would hurt anyone. So maybe we don’t get filled. Big Deal! I hear you on the “if it won’t go down on a rate cut” thing, though. Pity.
    The base of the large blue channel on this weekly chart is around 12240 (the yellow one is about 12190 – good bloody luck). Look at the distance to the top (on the blue channel). That would be some nice Jordan air time!
    I recall something about trades that seem *too* obvious. It wasn’t good. Lucky we have Jordan on our side with this pair.

  9. Defo Schubes. We’re also sitting on the bottom of the wedge of Nov 2012 support/ July 2013 resistance

  10. Maybe,

    because U r long ….;)

  11. It is highly unlikely that that Czech government did anything in Euro yesterday. The Government reserve position is less than 4 billion in total. It is more likely that a huge speculator has purchased alot or Euro/czech
    on the back of the rate cut in that the interest rate scenario favor the U.S. Dollar and like most E M countries the capital flight will put pressure on the currency to devalve. Czech is very near the top of the list for a devaluation with Turkey ,South Africia and Hungary

  12. Just looking into it they did Cambsite. Estimates they bought €2-5bn bang in the middle of the ECB stuff.

  13. For the ones do not understand the diverting movements of NOK and CHF.
    The ECB rate cut means that ECB economists expected inflation to continue to be low for a prolonged time.
    NOK is a risk-on currency that profits on higher rates. Prolonged low inflation in Europe risks a rate cut for NOK, too.
    American money market funds often invest in higher yielding currencies like NZD, AUD or NOK.
    At the same time US GDP data was good and stock markets weakened. Hence markets anticipated that US investors moved out of the risk-on currency NOK into USD.

    EUR/CHF was lower because there is no risk of a SNB rate cut, they are at 0%. Swiss investors might now move out of EUR positions, consequently CHF was stronger. Investments in CHF are far more driven by rich Swiss investors than by American ones, while NOK, AUD and NZD are influenced far more by US investors that seek high yields.

    Hence, in order to make the EUR/CHF fly you must convince Swiss investors to buy European stocks
    Details below
    https://snbchf.com/chf/history-swiss-balance-of-payment/
    Have fun with it, the Swiss are quite proud with their economy.

George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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