Capital Trust Markets – Thomas Jordan, Chairman of the governing board of the Swiss National Bank (SNB) is set to deliver his latest speech at the University of Bern today, at 13:45 EST. The speech comes just ahead of Thursday’s Libor rate announcement and the SNB monetary policy assessment release. Jordon is notoriously candid when it comes to these types of engagements, rarely alluding to near-term monetary policy, despite the hordes of traders willing him to do so. There are sometimes however, small clues as to his current perception of the Swiss economy, from which monetary policy decisions can be inferred. For this reason, expect some volatility in the USDCHF as we head into the US afternoon session.
The pair is currently trading around 0.8740, just shy of key support at 0.8622. For the better part of a year, the USDCHF has formed something of a falling wedge, with just a few breaks of the pattern but never a close outside. Traditionally, this reversal pattern serves up a bullish bias on completion; with the validation being a close above the upper trendline. While Jordan’s speech will likely be insufficient to boost the pair towards that level, it may catalyze some upside momentum ahead of Wednesday’s rate decision and policy report, which if compounded by the two releases, could send the USDCHF towards its target breakout level around 0.87745. With ECB rate cuts slated for as early as next month, there is a high chance that the Jordan, and the SNB, may hint at following suit. Consensus expects Thursday’s announcement to hold rates steady at <0.25% (effectively zero) but the potential for April/May negative rates remains. A dovish tone in either release could go some way towards validating the pattern.
While traditionally a reversal pattern, a downside break (especially on the higher timeframes) can serve to switch the falling wedge’s bias to bearish. With the USDCHF trading so close to the lower trendline ahead of Jordan’s speech and Thursday’s key releases, this situation has to be considered. It is unlikely that the SNB will raise rates, especially in the wake of disappointing retail sales and producer price index releases last week. In addition, The Zentrum fur Europaische Wirtschaftsforschung (ZEW) revealed its six month economic outlook index for Switzerland to be 19.0, missing expectations at 25.0 and a previous release of 28.7. Having said this, a hawkish tone that hints at the SNB refusing to follow the ECB in its rate policy could raise expectations of a lift from the current rate floor.
Written by Samuel Rae – Chief Currency Strategist at Capital Trust Markets
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