Intraday Market Thoughts

SNB Fixes EURCHF, EURUSD Bounces off DMA, ISM Next

by Kyle Morrison
Sep 6, 2011 12:56

SNB rocks markets by fixing EURCHF at 1.20, EURCHF +10% in 80 minutes, RBA drops after rate hold, US services ISM is next. Ashraf’s Premium trades will be unveiled later at the opening US bell. EURUSD bounced off its 200 dma.

The Swiss National Bank rocks the markets by setting a minimum exchange rate at 1.20 against the Euro. EURCHF soars more than 10% in 80 minutes. SNB said it will enforce this level with utmost determination and it will buy foreign currency in unlimited quantities in order to achieve a substantial and sustained weakening of the CHF.

EURCHF reached a low today at 1.1019 and jumped almost 10% after the announcement to 1.2160. USDCHF gained from 0.7840 to 0.8572. The resulting rally in euro extended into EURUSD as the pair bounced off its 200 DMA of 1.40.

One factor possibly forcing the SNB decision is today’s Swiss August CPI showing -0.3% after -0.8% in July may have contributed to SNB’s decision. Italy’s budget announcement may also have pushed the SNB into acting ahead of another disappointing program.

The SNB said that strong Franc posed an acute risk to the economy and carries a risk of deflation. Should deflationary pressures continue, the SNB is ready to take other further steps to protect and support the economy.

The ECB said that the SNB had informed it about their intentions and that it made their decision under its own responsibility.

Japanese Yen that is sensitive to any chatter about the possibility of an intervention has weakened as well but only about 100 points.

Gold fell in reaction to SNB announcement to 1861 (silver to 41.70) but it has since recovered about half of its losses.

In other news, Eurozone GDP was not revised and stayed at 0.2% q/q. Yearly figure was revised down to 1.6% from 1.7%. German July manufacturing orders fell by -2.8% after they grew by 1.8% a month earlier. In the US, the US 10 year treasury yield fell below 2% for the first time in 60 years when it reached 1.975%.

The New York session will bring August ISM Non-Manufacturing composite index that is seen at 51.0, down from 52.7 a month earlier.

This morning's RBA rate decision left interest rates unchanged at 4.75%, and given the uncertain outlook for growth it remains unlikely that the bank will raise rates any time in the near future. While some economists are forecasting a rate cut by the end of the year, it appears that recent weak economic data is more likely to set the tone, and suggests that for now the bank remains fairly relaxed with rates at current levels due to concern about the global growth outlook, and recent turmoil in financial markets due to the debt situation in Europe.

Yesterday's not unexpected drop in services PMI data in the UK has prompted some fears with respect to further QE by the Bank of England this Thursday. This morning's disappointing BRC retail sales numbers won't have done anything to alter that perception, no matter how misguided the perception might be. The services PMI data did drop sharply, however given the events in August and the fall-out from the riots that shouldn't have been a surprise. In the wake of events in Europe and the high levels of inflation it is unlikely that the Bank will move this Thursday, despite some economists suggesting they might



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