Perhaps the happiest people in the world right now are the folks at the Swiss National Bank. For the first time in months the EUR/CHF rate has held a rally well above the 1.2000 floor rate the SNB declared that it would defend in an unlimited fashion, meaning they can take a break from buying euros, at least for a while. The cross has traded up to about 1.2050 on Wednesday, and today (as of this writing) has seen action north of 1.2060. As the chart below shows, the market hasn’t been this high since a brief spike in May and hasn’t managed multiple days above 1.2040 since April.
So why is this happening?
There was some market talk about the SNB pushing the floor up to 1.22 on Wednesday. Nothing came out of the central bank to support such a policy shift, however, so we can write that one off.
Better to look to developments with that other European central bank. Talk circulated yesterday about what the ECB was going to announce today (Thursday) on policy regarding sovereign debt buying and whatnot. Most of what got circulated (no rate move, structure of the program, etc.) is indeed what came from Draghi’s press conference. This has all supported the euro.
Keep an eye on EUR/CHF moving forward, though. If the rate holds up, and perhaps pushes higher, then it will be an indication of the market shifting to reflect some kind of change of perspective where the single currency and the EZ in general are concerned. In other words, EUR/CHF not reverting back to its very narrow range just above 1.20 would tell us there’s been some positive result from the ECB move announced today.
If, on the other hand, EUR/CHF falls back down again then that will tell us the markets aren’t buying what we’ve been hearing from Draghi as a meaningful solution.
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