Forex - No Sign Of SNB Intervention As Swiss Franc Strengthens To 1.5000

Forex News and Events: By far the most significant development in the FX markets overnight has originated in the most inconspicuous of currency pairs. EURCHF spent most of yesterday grinding gradually lower from 1.5100 levels to 1.5025 (dragged by the sell-off in EURUSD), but this morning the pair plunged through the major support and prior SNB intervention level of 1.5000 levels to touch lows of 1.4909. The rout caught virtually everyone off-guard. The SNB’s rhetoric has continuously asserted they are committed to fending off deflation, and that using currency intervention to prevent CHF appreciation against the EUR has been highly favoured by members such as Jordan and Roth to help achieve that goal. Since the SNB’s first uncompromising round of intervention in March this year, the pair has never been within a whisker of 1.5000 levels without a sharp correction higher, and markets have largely respected, or learned to respect, the SNB’s intervention zones. The developments last night suggest that perhaps, finally, the central bank has stepped aside and is letting the market determine for itself where the currency should trade. From a fundamental perspective, there are good indications that this might be the case – annualized CPI data seems to have bottomed out at -1.2% back in July, and since then it has steadily increased to 0.0% at the last reading in December. Although they are very early predictions, consensus for January’s CPI data is looking for inflation to tick up to 0.5% YoY. Another factor to consider is that over the last 9 months, SNB interventions have frequently coincided with the ECB’s 12-month tenders. The last of these operations took place on Wednesday, and it was the absence of intervention, rather than the presence of it that has become the significant news now. From a technical perspective, EURCHF has been forming an enormous symmetrical triangle formation for the past 14 months, and chart-followers will be rubbing their hands in glee at the prospect that this move has provided the daily closing break lower that signals an even more significant move lower down towards 1.3550 levels. However, before the markets begin selling EURCHF in earnest, there is the pervading sense that the SNB could still be lurking in the wings to spoil the party. Even if CPI does tick higher to 0.5% YoY in January, it is by no means an overwhelming assurance that the threat of deflation has passed. Policy-makers have always been careful to avoid setting a target exchange rate for EURCHF, and we could very easily envision a scenario where the SNB steps in at slightly lower levels, but intervenes with the same characteristic aggression as before. With such uncertainty, tight risk management will be the key to playing this pair going forward, but we feel that the tentative signs recovery are still in such a fragile balance that a significantly stronger CHF will not be any more palatable to the SNB now than it was over the last year.

Today's Key Issues (time in GMT): 10:00 EUR Trade balance, € bn (sa) Oct exp: 5.7 prev: 6.8

The Risk Today: EurUsd With a very light data calendar we are anticipating a period of consolidation for EURUSD, but the range between the between the key technical levels is quite wide given the recent moves. Our bias is for a continuation of the bearish correction but would like to see a revisit of 1.4684 for ideal short-entry level, with prior support at 1.4515 now acting as decent resistance. Any break above there would face a major hurdle rallying higher at 1.4685. On the downside the 1.4305 lows yesterday form the first support, with the 200 day moving average providing some cushion below there at 1.4180. GbpUsd Despite yesterday's collapse through 1.6200 levels to breach the lower end of its bearish channel (touching lows at 1.6080), GBPUSD managed to close just above the crucial 1.6150 lower bound of the channel, thus denying GBP bears the closing break below they needed to target a move further to 1.6000-40. The rebound has so far been capped by good supply just ahead of 1.6250, and we retain the bearish bias awaiting a daily close below 1.6150 for now; however we are cautious that a break above 1.6250 would send us firmly back into the channel and next ressitance would not come in until 1.6400. UsdJpy The overnight spike lower (to 88.97) on rumours of a Pakistan coup intially looked to have violated the 3-week uptrend that has been in play since the pair bottomed at 84.81 in 27th Nov; however the sell-off was short-lived, and the hourly close above the trendline at 89.40 ensured we remain on track for a continuation of the bullish move higher. We have since returned above 90.20 levels and are eyeing a test of yesterday's 90.37 highs; with resistance expected above there at 90.86 (where the 9 month downtrend comes in to play) and expect buying interest at the trendline support of 89.60 below. UsdChf Since the significant break above the 100 day moving average at 1.0350 on Tuesday, USDCHF looks set to continue its bullish run towards resistance at 1.0625, and beyond there to the 1.0700 major resistance and 38.2% correction of the move from 1.1970 down to 0.9918. There are a slew of decent support levels on the downside; 1.0350,1.0240, 1.0175, 1.0075 and 1.0000.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.4710 1.6485 92.30 1.0700 1.4685 1.6400 91.30 1.0625 1.4515 1.6250 90.37 1.0500 1.4400 1.6220 90.20 1.0410 1.4305 1.6150 88.50 1.0350 1.4180 1.6100 87.10 1.0240 1.4000 1.6040 86.55 1.0175 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot