USD/CHF, EUR/CHF: A SNB Schlegel surprise set to rattle Swiss franc

Market split on 25 or 50bps SNB rate cut
SNB Schlegel’s debut to set the tone for Swiss monetary policy
USD/CHF tied to US-Swiss 2-year yield differentials
EUR/CHF directional risks may be skewing higher

Overview

Thursday’s Swiss National Bank’s (SNB) interest rate decision will deliver fireworks one way or another, with a 25 or 50bps cut deemed a line-ball call by traders. Coupled with the release of US inflation figures on Wednesday and European Central Bank’s (ECB) policy decision soon after the SNB’s rate call, and the next 24 hours could deliver some extreme movement in USD/CHF and EUR/CHF.

This note will look at pricing for the December SNB meeting, key directional drivers of USD/CHF over the past month, along with the technical picture for both it and EUR/CHF, providing a potential blueprint for traders to build setups around.

Divided market recipe for volatility

The SNB’s final rate call of 2024 looks set to deliver fireworks with the market divided on whether it will cut 25 or 50bps, as seen in the implied probability using overnight index swaps from Bloomberg below.

Source: Bloomberg

Whenever you see a market as divided as this, it inevitably leads to volatility as traders react immediately to the decision, erasing the pricing for the alternate outcome within seconds, sometimes faster. There are two outcomes, but only one can be right.

Watch for rate differentials to reassert

I don’t pretend to be an expert in Swiss monetary policy, especially when we’re dealing with a new SNB president in Martin Schlegel, but I can say with more confidence that we know what is likely to influence USD/CHF once volatility around the event dies down: interest rate differentials, especially at the front-end of the curve influenced by central bank expectations.

Source: TradingView

While not the strongest relationship, note the rolling correlation between USD/CHF and US-Swiss two-year bond yield differentials in blue in the right-hand pane above, sitting at 0.83 over the past month. That’s stronger than any other part of the interest rate curve and even stronger than the inverse relationship with EUR/USD over the same period.

Should that relationship be maintained, wherever USD/CHF ends up following the US inflation report and SNB decision, relative short-dated interest rate differentials between the US and Switzerland may provide clues on directional risks for USD/CHF moving forward.

USD/CHF momentum turning higher?

Source: TradingView

I’m not putting too much weight on it given major risks events ahead, but the reversal back above .8800 comes across as a bullish development for USD/CHF near-term. Though yet to be confirmed by MACD, the downtrend break in RSI (14) also hints that momentum risks may be starting to turn higher.

For those considering USD/CHF setups, resistance may be encountered at .8895, .8959, .9000 and .9050. On the downside, support is found at .8800, 50-day moving average, .8711 and .8617.

EUR/CHF signals turning bullish

Source: TradingView

On the EUR/CHF outlook, the picture is more clouded from a market driver perspective with the pair not particularly correlated with any major asset classes I track, potentially increasing the weight of price and momentum signals when it comes to directional clues.

While the pair has been trending lower for quite some time, the divergence between price and RSI (14), the bullish signal from MACD and bullish engulfing candle on Tuesday points to building upside risks heading into Thursday.

For those evaluating setups, resistance may be encountered at .9334, 50-day moving average, .9446 and .9520. Downside support is located at .9256 and .9211. Below the latter, there's little to speak of until .8630 where EUR/CHF bottomed in the aftermath of the SNB peg being broken in 2015.

-- Written by David Scutt

Follow David on Twitter @scutty

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.