The dollar/franc pair jumped to two-month highs today, heading towards the borders of the 93rd figure. The nearest resistance level is located at the upper border of the Kumo cloud on the D1 timeframe (0.9300) – and there is no doubt that buyers of the pair will test this target in the medium term. At least, the fundamental background contributes to this: the franc is depreciating against the background of dovish comments from the head of the Swiss central bank, the dollar then continues to rise in price throughout the market, reflecting increased demand. All this makes it possible for us to say that the franc will not only conquer the 93rd figure in the foreseeable future, but will also get close to the key resistance level 0.9405 (Kijun-sen line on the weekly chart). It is too early to talk about such price heights, since there are still certain prerequisites for a growth breakthrough. However, everything in order.
As a rule, meetings of the Swiss National Bank no longer cause strong volatility or any excitement in the market. With rare exceptions, the central bank only repeats what was mentioned earlier, practically without changing the wording. However, many anticipated this particular September meeting, as rumors about the dovish attitude of the SNB circulated on the market. And these rumors were largely justified: SNB Chairman Thomas Jordan criticized the overvalued, in his opinion, rate of the franc and announced the conduct of currency interventions.
The overvalued franc is a big problem for the SNB. This is not fresh news: since the EUR/CHF rate decoupled from the 1.2000 target (this level was previously maintained artificially), the SNB has been constantly trying to pull down the price of its currency. Many spheres of the country’s economy suffer from the expensive franc – first of all, the export and tourism sector. This is especially important in the context of the coronavirus crisis, since the service sector is at the forefront of the attack. Therefore, the central bank is constantly expected to take retaliatory measures. The SNB is in no hurry to act, at least in the context of monetary easing. At the same time, the Swiss currency, as a rule, ignores many of (almost all) Jordan’s verbal attitudes.
But today the franc still fell under Jordan’s dovish rhetoric First of all, he emphasized that the franc is “highly overvalued”. Second, he said that inflationary forecasts “faced unprecedented high uncertainty.” Based on the first two points, he moved on to the third, according to which the central bank is ready to conduct foreign exchange interventions. Jordan also stated that the coronavirus crisis has an extremely negative impact on the country’s economy, so the SNB will continue to adhere to an expansionary policy. And although key indicators are expected to increase in the third quarter (after a record collapse in the second quarter), by the end of the year, Switzerland’s GDP should decline by more than five percent – this is the worst result in the last 50 years (such a decline was last observed in the mid-70s. -s). As a result, Jordan promised to use, if necessary, “all instruments of monetary policy”, thereby increasing the pressure on the Swiss currency.
Let me remind you that the current rate on deposits in Switzerland is -0.75% per annum, and the list of so-called “privileged recipients” (i.e. the list of those exempted from negative rates) has been cut more than once. Traders fear that if the situation worsens, the SNB may conduct shock therapy – and here we are talking about a whole complex of mitigating measures. According to experts, the central bank can further reduce the rate (down to -1% or even -1.25%), as well as significantly revise the list of beneficiaries. Plus, there is a need to carry out a large-scale foreign exchange intervention. Such a scenario looks unlikely at the moment, but Jordan’s dovish rhetoric reminded traders that the Swiss central bank has enough leverage in its arsenal.
Considering the SNB’s position and the US dollar’s growth, we can conclude that the priority is to buy USD/CHF. The first target for moving up is 0.9290 (upper border of the Kumo cloud on the daily chart. Key resistance level is much higher at 0.9405 (Kijun-sen line on the weekly chart).