Swiss Franc Sets 17-Month Low Versus the Euro

  • Stops tripped as EUR/CHF breaches 1.1100, eyes 1.1200
  • Move follows recent SNB protest over currency strength

Swiss Franc Continues to Weaken as Selloff Deepens

The Swiss franc dropped versus all of its G-10 peers and fell to its lowest since February 2016 against the euro in a sharp move that began during the European session. The decline came after Swiss National Bank President Thomas Jordan earlier this week repeated his assertion that the currency remains significantly overvalued.

The Swiss franc fell more than 0.7 percent against the common currency, which approached its highest level since the Swiss National Bank unexpectedly abandoned its defense of the 1.2000 floor against the euro on Jan. 15, 2015. With its negative yield, the Swiss franc has become an attractive funding currency for carry trades, along with the yen. Wednesday, they both lost ground against the dollar.

“The broad risk-on sentiment that we’re seeing is probably weighing on the Swiss franc,” said Erik Nelson, a currency strategist at Wells Fargo. “When things are good, people like to sell the negative-interest-funding currency and buy high-yielding currencies.”

  • Technical considerations also appeared to play a role in the move. Stop-loss buy orders were tripped after EUR/CHF broke above 1.1100, one trader in London said, though there was no clear driver of the initial move, that trader and others said. EUR/CHF rose as high as 1.1175 Wednesday, nearing its 1.1200 peak from Feb. 4, 2016, that was the highest since the floor was abandoned
  • Demand for EUR/CHF options surged more than seven-fold to EU1.2b; USD/CHF rose as much as 0.6% to 0.9595 before stalling at technical resistance from its 21-DMA
  • The 2015 decision to remove support for the floor allowed the Swiss franc to appreciate by as much as about 30 percent on the day as investors and speculators scrambled to buy back a currency that had been an easy bet amid political and economic uncertainty in the euro area. The Swiss bank abandoned its defense after four years, though its made no secret of the fact that it prefers a weaker currency, a theme which Jordan raised again in a recent interview with newspaper Le Temps
  • In 2015, the SNB had been accumulating billions in FX reserves as investors parked money in Switzerland amid safe-haven flows, forcing the SNB to abandon a EUR/CHF floor at 1.2000 that it had deemed in 2011 to be the strongest level that the CHF could achieve without destabilizing the local economy
  • “Should the 1.1201 level be overcome, this would establish a much larger base and signal a more sustained rally, for the 78.6% retracement of the December 2014/January 2015 decline at 1.1328 initially. Above here would aim at the 38.2% retracement of the entire 2007/15 fall at 1.1681,” Credit Suisse strategist David Sneddon wrote in a note
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