Swiss National Surprises Markets by Dropping Euro Peg and Cutting Interest Rate The biggest move of 2015 was the decision undertaken by the Swiss National Bank to drop the minimum exchange rate against the Euro set in 2011 to prevent speculative inflows. EURCHF saw volatility in the subsequent years as the SNB vigorously defended the minimum rate of 1.2000. However, in a move that surprised analysts and traders globally, decided to abandon the currency peg as the Central Bank’s balance sheet expanded to levels that were largely unmanageable for the small nation. In an effort to continue to prevent speculative inflows of hot money seeking safe havens, the SNB also took an uber-dovish stance, dropping rates to -0.75%. This is the lowest rate of any developed economy and means that depositors are actually paying banks interest for the relative safety of deposits. EURCHF plunged on the announcement, with the pair dropping over 3500 pips before recovering to just over parity. EURUSD and USDCHF were broadly affected by the move which prompted a global capital reallocation. EURUSD fell over 2000 pips before rebounding slightly. However, fears from Greece have reaccelerated the slide lower with EURUSD presently trending near levels not seen since 2003. The Greek banking woes have seen increasing momentum with several banks asking for emergency assistance as Greek’s line up to withdraw funds from the bank in anticipation of next week’s parliamentary vote. Banks saw a record EUR 3 billion in outflows in December. Several bank runs have prompted two banks to request assistance from the Emergency Liquidity Program setup by the Bank of Greece as the surge in outflows cripples the banking sector. Equities and commodities are experiencing substantial volatility as well, with U.S. stock benchmarks closing lower for a 5th straight session. As the fears spreads from Europe, sovereign investment grade bonds continue to see inflows while stocks are hammered lower. After briefly overtaking Brent crude oil yesterday, WTI is again trading at a discount to Brent of approximately $1. Clients that took advantage of the widening spread between WTI and Brent were rewarded for their actions. In the meantime, gold prices continue to rise on the renewed market uncertainty as investors rush for the exits in risk assets. Economic Calendar French CAC-40 Ascending Triangle Trading Opportunity After rebounding from December lows, the French CAC has steadily trended higher as ECB President Mario Draghi has been able to re-instill confidence in the Eurozone. The equity benchmark has found heavy resistance at 4335 as core European nations are still struggling to overcome the blowback from the sanctions against Russia. As the index consolidates between the uptrend line and resistance level, the technical pattern has a bullish bias. Any move above resistance should be treated as a breakout trade with the resistance line as the entry point and exit strategy if the breakout fails. Reward should be set as 60-70% of the range set between December lows and resistance at 4335. Any move below the uptrend line will imply that the pattern is broken and should not be traded. Resistance: 4335 Support: 4264
Posted on: Fri, 16 Jan 2015 22:06:18 +0000
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