Euro Weakness Forces SNB to Resume Forex Intervention
THE TAKEAWAY: SNB foreign currency reserves jump by the largest amount in six months -> SNB may be resuming Forex intervention following Euro weakness -> Franc declines slightly
The Swiss National Bank seems to have resumed acting to maintain its EUR/CHF 1.20 floor, as its foreign currency reserves rose by the largest amount in six months. Foreign currency reserves were reported at 438.3 billion Francs in March, beating expectations for 427.0 billion and up from a revised 430 billion in February.
The rise in the SNB’s foreign currency reserves seemed to stall below 430 billion Francs in October 2012, as a rally in Euro trading eased the pressure on the SNB to maintain the 1.20 floor in EUR/CHF trading. However, the recent selloff in Euro on weakening economic data has driven the pair back to within of 150 points of the level reinforced by the central bank, and may be forcing the SNB to restart its foreign currency purchases.
SNB President Jordan said in February that he thought the bank won’t have to continue buying foreign currencies, as the Franc will naturally continue to depreciate with the Euro-zone recovery. However, signs of the recovery are stalling and Euro sellers are looking for safe haven currencies like the Franc, which may have brought the SNB back to the Forex table.
The 1.20 floor in EUR/CHF has been maintained since September of 2011, when the SNB said it will buy the Euro using an unlimited supply of the Swiss Franc. The SNB spent 188 billion Francs in 2012 to enforce the cap on its currency, the equivalent of nearly a third of its GDP, and the currency pledge was reiterated by the central bank in its March meeting.
The Euro rose towards 1.2170 against the Franc following the announcement. Resistance might next be provided at 1.2180, by the 76.4% retracement of the rally from the February low to the March high. Support could be provided at 1.2128, by the 200 day moving average.
EURCHFDaily: April 05, 2013
Chart created by Benjamin Spier using Marketscope 2.0
-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .
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