Jordan Says CHF Facing "Enormous" Pressure

The Swiss National Bank looks set to ease further this month. Speaking this week, the SNB chief Thomas Jordan told newspaper that the SNB is under “enormous” pressure due to the safe haven inflows inflation the currency’s strength. The SNB spent most of last year warning that trade-war related safe-haven inflows could exert undue upside pressure on the strength, leading to the need for intervention. Now, with the COVID-19 pandemic having caught markets totally off-guard, Jordan told reporters this week “We unfortunately have no choice but to maintain the negative interest rate,” said Jordan. Without it, we would be in a much more difficult situation now.

“The Swiss franc would be massively more attractive and the financing conditions for the Swiss economy would be much worse,” The SNB chief added: “The negative interest is necessary at the moment to avert major damage to Switzerland.”

At -0.75%, rates in Switzerland are the lowest in the world, and although Jordan said he would prefer to raise rates from this level he explained that it is currently impossible.

SNB Sight Deposits Rising

The SNB has also been increasing its foreign currency buying with sight deposits (seen as a proxy for SNB intervention) at the central bank having risen by 77 billion. However, the SNB continues to obscure its specific level of activity in the market with Jordan telling reporters: “We have emphasized several times ... we are active in the foreign exchange markets to reduce the pressure on the Swiss franc,”

In A move announced yesterday, the SNB increased the coverage of its CRF (COVID-19 refinancing facility) which will now also cover funding guarantees from regional Swiss governments not just the Swiss Federal government, as previously.

The programme, which was first launched in March in order to funnel liquidity through regional banks to the companies damaged by the COVID-19 crisis has already seen 15 billion CHF worth of loans passed out to around 123k companies.

EURCHF Testing Support

The CHF has been rising steadily throughout the year with EURCHF now at its lowest level since mid-July. For now, EURCHF continues to be defended along the 1.05 level though, with safe-haven inflows continuing to build, there is a risk of a drop below here. As lock-downs begin to ease around the globe, the next six weeks will be crucial and if there is seen to be a second spike in infections this could shatter risk sentiment once again sending CHF soaring and almost certainly leading to further action from the SNB.

Technical Views

EURCHF (Bearish below 1.0629)

From a technical viewpoint. EURCHF continues to move lower within the bearish channel which has framed the descent from 2018 highs. Price has now broken below key structural support at the 1.0629 lows (also the yearly s1). While below here, the 1.0334 level is the next downside marker to watch. To the topside, the 1.0850 highs (along with bear channel top) will be the key hurdle needed to be overcome to affect a shift in sentiment.

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