The currency markets were busy after the Federal Reserve announced on Wednesday that it would implement further monetary easing, in order to help the fragile US recovery. Under this program, known as QE4, the Fed will purchase an additional $45 billion per month in Treasury holdings starting in January. As the Fed is currently buying $40 billion in mortgage bonds, this brings the total to some $85 billion per month. This level is expected to continue well into 2013.
The Fed is hoping that this step will bolster the US economy and lower unemployment, which remains close to 8%. Operation Twist, in which the Fed swapped short-term Treasuries for longer term U.S. government debt, will be phased out at the end of December. Following the announcement, the dollar lost ground against the euro and other major currencies.
In Brussels, EU leaders from the bloc’s 27 countries are gathering for their final summit of 2012. High on the agenda is a proposal for the ECB to become the single supervisor of all 6,000 banks in the Eurozone. The ECB would, in essence take on the role of a “super banking commissioner, responsible for providing supervisory oversight of all banks in the Eurozone, and perhaps in the EU as well.
The chair of the summit, Herman Van Rompuy, is looking for wide support for the program at Thursday’s summit, with the details to be worked out sometime in 2013. However, Germany may object to the proposal, which could be a major obstacle. Germany would prefer that German banks and saving institutions governed by a German banking regulator rather than the ECB, even though the latter is based in Frankfurt.
There were no surprises as the SNB released its quarterly Monetary Policy Assessment. The central bank will continue to leave the minimum EUR/CHF exchange rate of 1.20 untouched. The Libor three-month rate remains at 0% – 0.25%, and there was no change to the inflation and growth forecasts. The SNB is predicting that for 2012, inflation will fall by 0.7%, and growth will increase by 1.0%. In economic news, Swiss PPI came in at a flat 0.0%, which was better than the estimate of -0.3%.
EUR/CHF for Thursday, Dec 13, 2012
EUR/CHF Dec 13 at 17:10 GMT
1.2085 H: 1.2128 L: 1.2084
S3 S2 S1 R1 R2 R3
1.20 1.2030 1.2080 1.2120 1.2155 1.2180
The SNB appears determined to maintain a bottom range of 1.20 for the pair. 1.2080 is providing weak support as EUR/CHF flirted with the 1.21 line. 1.21 is the next line on the upside.
• Current range: 1.2080 to 1.2145
Further levels in both directions:
• Below: 1.2080, 1.2030 and 1.20.
• Above: 1.2120, 1.2136 and 1.2155 and 1.2180
The euro looked shaky after the Q4 announcement, and the swissie has taken advantage, crossing below the 1.21 line. We could see the Swiss franc make further gains and move towards the 1.20 line.
• 6:45 Swiss SECO Economic Forecasts.
• 8:15 Swiss PPI. Estimate -0.3%. Actual 0.0%.
• 8:30 Libor Rate Estimate <0.25%. Actual <0.25%. • 8:30 SNB Monetary Policy Assessment. • 8:30 SNB Press Conference. • 9:00 ECB Monthly Bulletin. • All Day: EU Economic Summit (Day 1 of 2). • All Day: Eurogroup Meetings *Key releases are highlighted in bold *All release times are GMT