EURCHF on a Tear After SNB Intervenes, Cuts Rates, Starts QE

Last updated 3/12/2009 9:25 AM EST (GMT -5) 0 Comments - Add your comment

Kathy Lien

Director of Currency Research, GFT

EURCHF has ripped higher as the Swiss Franc collapsed following the Swiss National Bank's interest rate announcement. Their decision to cut the Libor target range 25bp to 0.00-0.75 percent was leaked yesterday but the big move in the Franc was driven by the SNB's massive Quantitative Easing program involving currency intervention .

In addition to buying Swiss bonds, the SNB is planning to buy foreign currencies and foreign bonds to protect their export sector. Their announcement today is aimed at accomplishing 2 goals at their expense of their neighbors which is protect their export sector and prevent the economy from falling into a deflation trap.

The SNB has been very frustrated with the appreciation in the Swiss Franc against the euro and in response, they are intervening directly in the currency market to avoid a further appreciation. In other words, a massive buyer of EUR/CHF has entered the market. Both EUR/CHF and USD/CHF have soared more than 3 percent to a 2 month high following the interest rate decision. With the SNB's deep pockets, this should be the beginning of further losses in the Swiss Franc.

On the economy, the SNB expects a contraction of 2.5 to 3 percent, which is a big downward revision from their prior forecast of 0.5 to 1 percent. They expect inflation to be negative in 2009 and flat in 2010. As a result, the SNB remains in aggressive easing mode and will accomplish that by buying bonds and selling Francs.

Of the 8 major currencies, the Swiss Franc ties the U.S.dollar for the second lowest yielding currency.

Source: FX360.com

Loading...

About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.