By: Christopher Lewis
One of the most “boring” pairs at the moment is the EUR/CHF pair. This is mainly because of action out of the Swiss National Bank recently. The SNB announced that it “could no longer tolerate the Euro trading at 1.20 to the Franc.” It also went so far as to say that it was “willing to buy unlimited amounts of foreign currency in order to stabilize the value of the Franc.” This is a very strong and unusual statement for a normally reserved central bank.
Because of this, the EUR/CHF skyrocketed up 1,000 pips in a few short hours, to sit just above the 1.20 mark. The pair has since rose to over 1.22, and now just sits there. The pair is acting like “the place where money goes to die” at the moment, but there are some possible major plays coming.
Since we know that the SNB is going to defend the downside, we can do one of two things: Either wait for a move downward against the SNB and buy, which will almost certainly result in intervention, or buying on signs of hope out of the EU. However, the “hope” out of the EU is the tricky part.
While it seems like the EU will never get it together, you must keep in mind that there are a lot of the political elite that have their lives invested in the idea of a “common Europe”. This will not be let go quietly, and as such it wouldn’t surprise many if it was still around in a few years, despite the calls for its demise by some. Will it look the same? Probably not. But an EU that is leaner and healthier would almost certainly send the Euro up rapidly. There are talks of Greece leaving the EU, which would be massively bearish in the short-term, but in the end: It should provide a lift as it cuts out the fat of the zone. However long something like that would take, you must keep in mind that it could be the end game. In the mean time, we could see several strong moves to shore up the EU and its banks, which is the first concern for many.
As the EU slowly comes around to finally taking action, the EUR/CHF might get overlooked my many as it has been so dormant. However, if you keep one ear on the EU and one eye on the EUR/CHF chart – you could catch a cyclical trend change as the pair rises. Will this happen this week? Probably not. But one has to think it is coming sooner or later.