The Swiss National Bank (SNB) has kept a relatively firm stance with regard to its national currency (the Franc), particularly against the Euro, and has enacted measures on several occasions to keep the currency weak as a means for stimulating the country’s export companies. Most of the Bank’s focus has been placed on the exchange rate relative to the Euro, as this is the region where most of the country’s export purchases are made. The current price floor in the EUR/CHF currency pair is seen at 1.20 and prices have hovered in this region (with extremely low volatility levels) for most of this year.
Recently, however, market participants in selling positions were able to violate this price floor, as the Swiss Franc briefly rose above the 1.20 against the Euro. While the most was unsustainable, it did bring the credibility of the central bank into question and raised the possibility that we could see additional price floor breaches going forward. So how can trader’s forecast future price behavior in the EUR/CHF currency pair? One key area to watch is the direct commentary from the SNB leadership, as this will shed some light on the future policy moves that might be enacted.
SNB Intervention Commentary
The question of whether or not we will see renewed currency intervention from the SNB has been directly asked of the central bank’s leaders and President Thomas Jordan, in particular. While official comments from the SNB have suggested that there will be no change in the current price floor, the worsening crisis in the Eurozone presents a potential problem, as any further deterioration could lead to a massive devaluation of the Euro against all its major counterparts (the Swiss Franc included).
In recent meetings, the SNB has shown its consideration of capital controls as a means for keeping the current price floor intact. While the central bank has stated numerous times that it is prepared to buy foreign exchange reserves in “unlimited quantities” as a means for keeping its exchange rate weak, the major test of these proposals will come if one or more members of the Eurozone are forced to leave the Union before the end of the year. According to government data, the number of currency reserves held by the Swiss National Bank are seen totaling nearly 240 billion Francs, which is more than double the levels that were present in 2009. These increases came largely as a result of the numerous bank interventions that have been processed since then and the main question for currency traders will be the degree to which the SNB is able to continue with these operations.