Swiss Franc Turns Bearish on SNB’s FX Intervention

Swiss Franc Turns Bearish on SNB’s FX Intervention
July 11, 2016

Swiss Franc, as everyone is aware of, is a traditional safe haven currency. Thus, it was not a surprise to see the currency rise sharply in the aftermath of the Brexit referendum. However, even at this stage, there are economies which continue to post better than average growth. Sweden is one such country, which continues to outpace the growth of several other European economies. Thus, currency such as Swedish Kronor is fundamentally strong. Due to this reason, the CHFSEK pair reversed in a matter of a few days. There are a few more reasons, as explained below, to believe that the CHFSEK pair would decline further from the Friday’s closing level of 8.75.

According to Statistics Sweden (SCB), the country registered a y-o-y growth rate of 4.2% in the Q1 2016. Booming construction sector, increase in household consumption, and a rise in public investment contributed to the strong economic growth. Finance Minister Magdalena Anderson stated that the economy is growing at a stable pace and there are no signs of overheating.

Considering the official growth rate of 2.1% and 1.6% in Britain and Germany, the reported expansion is very impressive. In the case of Switzerland the economy grew only by a paltry 0.1% in the first-quarter of 2016. The analysts expected a growth rate of 0.2%.

In June, Switzerland reported a decline in the inflation rate by 0.4%, compared to the similar period last year. The 20th consecutive month of deflation has tremendously increased the pressure on the Swiss National Bank (SNB). If the Swiss Franc strengthens further, then it will cause a huge decline in the exports. Taking this into account, the SNB announced that it will intervene in the currency market to avoid strengthening of the Swiss Franc. Within a week after the results of the Brexit referendum was announced, the SNB intervened in the currency and equity markets for an estimated CHF6 billion Francs. The SNB has cautioned that it will intervene as and if necessary. Thus, it is absolutely clear that the CHFSEK currency pair will remain bearish until the SNB withdraws its decision to intervene in the currency markets.

The CHFSEK pair continues to move within the declining channel. The chart also reveals that the currency pair is unable to break the upper band of the channel. Furthermore, the stochastic reading of 96 indicates that selling may begin soon.

CHFSEK - Technical Analysis - 13th July 2016

Thus, as of now, a Forex trader should only look at the option of taking short positions. The short entry can be done at 8.73, with a stop loss order above 8.82. The short position can be winded when the price declines to about 8.08.

A binary trader should buy a one touch put option contract to capitalize on the decline of the CHFSEK pair. The recommended strike price for the trade is 8.45 or higher. The trader should also opt for a contract expiry date in the first week of August.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

Related Articles

Greenback Strengthens On Strong Non-Farm Payrolls Data

  The United States dollar rallied against its major peers and regained its lost ground on Friday during the European

Pound Plunges On 6-year Low GDP Growth

  Yesterday, the British pound started forming new daily lows in the early European session after the release of poor

The Leading Cryptocurrency Stories for 23rd July 2018

The solid rise of Bitcoin from around $5,800 to over $7,500 has turned skeptics silent. In fact, the rise was