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Will EUR/CHF Test Its Peg?

Last updated 1/27/2012 4:13 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

On a very quiet night in the currency market with very little data on the economic calendar attention has shifted to EUR/CHF which has been steadily drifting lower since the start of the year coming dangerously close to the 1.2000 peg set by the SNB. Yesterday the pair came with a few pips of the 1.2050 level - its lowest reading since the central bank intervention last September.

Today’s poor  results from the KOF economic barometer which printed at -0.17 versus -0.06 eyed failed to weaken the franc prompting BIS and other official names to go on the bid in the pair lifting it to 1.2085 in early morning European trade. However it failed to spark a rally and the pair started to drift towards the key 1.2050 barrier.

The price action in EUR/CHF has been decidedly weak ever since the architect of the peg Philip Hildebrand, the former head of the SNB was forced to resign due to a possible insider trading scandal involving his wife. Ironically enough during this time macro economic conditions in the EZ credit markets have eased considerably as the ECB introduced its LTRO mechanism to add liquidity into the system.

The fact that the Swiss franc has continued its rally against the euro as credit spreads in the region have compressed, suggests that many investors continue to hedge their bets by seeking the safety of the Swissie. A break of the key 1.2050 level in EUR/CHF could trigger  a qucik move towards 1.2000 as the market tries to test SNB’s resolve.     

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.