The 1.20 peg on EUR/CHF lasted from September 6th 2011 till 4:30 AM EST this morning. The Swiss National Bank was forced to abandon the peg as Swiss foreign exchange reserves have more than doubled since 2012. Last month alone, their reserves climbed 33 billion francs to 495.1 billion francs.
The completely unexpected move by the SNB forced extreme volatility into the eur/chf, eur/usd and usd/chf.
Expectations for ECB President Mario Draghi to launch their QE program on January 22nd forced the SNB to act.
Monetary policy had become very difficult for the SNB. The Swiss Economy had a record trade surplus despite a strong franc in 2014. They tied their currency to the euro, a currency that appears to be headed for another round of weakness and today’s decision appears to be a logical one.
The EUR/CHF chart shows the new record low that was made off the policy decision at 0.85172. The eur/usd dropped from 1.1752 to 1.1575 and the usd/chf fell from 1.0187 to 0.7406.
The price action after the surprise announcement was chaotic and for a time bids disappeared from the market. The eur/chf has stabilized near 1.0300. The top to bottom move took about 20 minutes.
After such a shock, it will be a time before normal volatility and liquidity returns. We may need to see another couple trading sessions to determine where this pair settles.
Tentative resistance will come from the 1.0450 level. The downward pressure is not by any means over though an immediate test of the extreme low at 0.85172 is unlikely.
Edward J. Moya
WorldWideMarkets Online Trading