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The SNB bomb of the January 2015 changed the global perception of how currencies and central banks operate for a long time to come. It may be one of most notable central bank events that shall linger in the minds of a generation that follows the markets.
Fast forward to today and we see that this event was not a one off. The current scenario in the chocolate and cheese nation continues to be one of continued easing and vigilance in protecting against appreciation in the value of the Swiss Franc
Chairman of Swiss National Bank (SNB) Thomas Jordan indicated that the Swiss Franc is still ‘significantly overvalued’ against the Euro on Tuesday. He also warned saying that the SNB is ready to intervene anytime to stem the CHF from strengthening if necessary. He also indicated the possibility of a currency war by the central banks as he thinks central banks are reacting according to their domestic situation.
SNB shall be meeting on March 17, 2016. Speculation growing ahead of SNB meeting is that the SNB will easy monetary policy further. In the last meeting on 10th December,2015 SNB left its deposit interest rate on hold at record low of -0.75 percent. These are the lowest interest rates in the world, and almost make the Japanese look like conservative hoarders of cash.
Open interest in CHF options indicates that traders are braced for further falls in the Franc. Risk Reversals are now flipped in favour of Swiss Franc weakness for the first time since 2014.
Fig: USDCHF Daily Technical Analysis
On the daily chart, USDCHF is going up in a choppy market. It tested the major resistance level @1.02350 on Monday and slipped slightly from there. Today it fell 0.18 percent. Price is still above of the 50 day and 200 day moving averages and Stochastic is indicating strong bullish momentum. A sustained move above 1.0320 would pave the way towards 1.1000.
Digital Put Options for a weakening CHF can be attempted in all CHF crosses – with USDCHF Call Options(which are put options on the CHF) being especially attractive above 1.0350.