At the beginning of last week, the franc paired with the euro reached two-year lows against the background of a rather sharp rise in anti-risk sentiment and dovish intentions of the ECB regarding the prospects for monetary policy. According to general market expectations, the Swiss regulator was supposed to react to this fact especially against the background of the escalating trade conflict between the US and China, as well as after the events in the Gulf of Oman. However, the Swiss National Bank ignored the warning signals at its June meeting yesterday and retained the status quo. This fact surprised investors, thus the cross-pair returned to the base of the 12th figure after a pulse of growth to 1.1247.
In general, the head of the SNB, Thomas Jordan, voiced soft rhetoric. He stated that the world economy is showing "contradictory signals", while global trade conflicts and a rise in protectionist sentiments only exacerbate general uncertainty. Regarding the situation within the state, Jordan noted an imbalance in the housing market, a weak inflation rate, and an overvalued national currency. He said that all of these circumstances justify negative interest rates. Also, the head of the SNB reiterated that the regulator is ready to intervene in the foreign exchange market in order to maintain the attractiveness of investments in the franc at low levels.
By and large, Jordan voiced a standard set of theses, which he repeats at each SNB meeting. In view of this fact, the traders actually ignored his performance, having long been accustomed to such "dovish" turns. The only know-how of yesterday's meeting is to change the key interest rate. Now, the SNB rate on deposits will now be the base rate instead of the targeted level of the three-month Libor rate. The accompanying statement by the Central Bank states that the reason for making this decision was that "the future of Libor remains unclear." However, in essence, the regulator retained the status quo here. As stated by the SNB statement, "the introduction of the interest rate guarantees that the forecast will be based on the same interest rate for the entire forecast period" (ie, until 2021).
Thus, the Swiss regulator has left out of focus the current situation in the foreign exchange market, "getting rid of" the formal phrases of a "dovish" character. This suggests that the franc retains its attractiveness as a protective tool as far as possible, given the effect of negative rates. Meanwhile, the unfolding events suggest that the demand for safe-haven currencies will grow. Let me remind you that two oil tankers were attacked in the Gulf of Oman this week. According to preliminary data, unknown persons made a torpedo attack and as a result, explosions and fire occurred on ships. The United States almost immediately blamed Iran for the attack while Tehran categorically rejected involvement in the incident. This incident was discussed at a closed meeting of the UN Security Council. However, no specific decisions were made. Countries advocated an investigation into the attack.
In other words, geopolitical tensions are rising again, intensifying anti-risk sentiment in the foreign exchange market. Washington and Tehran are not ready to conduct a direct dialogue with each other, thereby aggravating the overall situation. Iran's Supreme Leader Ali Khamenei, in a meeting with Japanese Prime Minister Shinzo Abe, said yesterday that Trump "does not deserve any communication, neither now nor in the future." He also noted that Iran already had the "sad experience" of negotiations with the States and there will be no more such mistakes to be repeated. Here, it is obvious that he was referring to the Nuclear Agreement from which the United States unilaterally withdrew and initiated sanctions pressure on Iran.
Meanwhile, the trade war between the United States and China also has not subsided. On the contrary: Trump said the other day that if the parties did not enter into a trade agreement in the near future, the American side would impose additional duties on Chinese goods totaling $ 325 billion. In turn, the Chinese authorities have warned the leaders of a number of major technology companies about the extremely negative consequences if they support the US ban on the sale of key technologies for Chinese companies. According to the American press, we are talking about companies such as Microsoft, Dell, ARM, Samsung, and SK Hynix Inc. It is noteworthy that representatives of these companies refused to comment on these threats.
Thus, the general fundamental background contributes to the strengthening of protective tools, which also includes the franc. The passive position of the SNB only increases the attractiveness of the Swiss currency.
In technical terms, the EUR / CHF cross-pair is between the middle and lower lines of the Bollinger Bands indicator on the weekly chart, as well as under the Kumo cloud and all the lines of the Ichimoku indicator. All of these speaks of the priority of the downward movement, at least to the first level of support at 1.1140 (the bottom line of the Bollinger Bands on the weekly chart).
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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