USD/CHF Dec. 13 Steady as Federal Reserve Expands QE

The Federal Reserve made a major announcement on Wednesday, stating that it intended to 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 $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.

The Federal Reserve also announced that it is maintaining the benchmark interest rate at 0% – 0.25%. Following the announcement, USD/CHF moved higher, but then lost some ground before leveling off. As expected, the Fed maintained the benchmark interest rate at below 0.25%, and stated that it does not expect to change these very low rate levels for the foreseeable future. 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.

In economic news, Swiss PPI came in at a flat 0.0%, which was better than the estimate of -0.3%. 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 the US, there are four key releases scheduled for later today – Core Retail Sales, Retail Sales, PPI and Unemployment Claims.

USD/CHF for Thursday, Dec 13, 2012

USD/CHF Dec 13 at 11:20 GMT
0.9268 H: 0.9272 L: 0.9248

S3 S2 S1 R1 R2 R3
0.9065 0.9164 0.9240 0.9315 0.9385 0.95

USD/CHF Technical
After a brief surge following the Fed announcement, the pair has retracted, and has leveled off. In the Asian session, the pair was steady, and consolidated around 0.9965. The pair is unchanged in the European session. Strong resistance can be found at the round number of 0.95, and this line continues to act as the top of the range. On the downside, the bottom of the range lies at 0.9240.
• Current range: 0.9240 to 0.9315
Further levels in both directions:
• Below: 0.9240, 0.9164, 0.9065 and 0.90.
• Above: 0.9315, 0.9385, 0.95, 0.9650 and 0.9783.
OANDA’s Open Position Ratios
USD/CHF bias remains strongly in favor of long positions. With the markets continuing to digest the dramatic Fed announcement of Q4, there is room for the swissie to take advantage and make inroads against the greenback.

Today’s Expectations

The Swiss franc responded positively to the Fed announcement, improving against the dollar. However, it failed to hold onto these gains. Traders should pay attention to today’s key releases out of the US. If there are some unexpected readings from this data, we could see further volatility from USD/CHF.

USD/CHF Fundamentals
• 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. • All Day: EU Economic Summit (Day 1 of 2). • 13:30 US Core Retail Sales. Estimate 0.0%. • 13:30 US PPI. Estimate -0.5%. • 13:30 US Retail Sales. Estimate +0.5%. • 13:30 US Unemployment Claims. Estimate 368K. • 13:30 US Core PPI. Estimate +0.2% • 15:00 US Business Inventories. Estimate +0.4%. • 15:50 US Natural Gas Storage. Estimate -4B. • 18:00 US 30-year Bond Auction. *Key releases are highlighted in bold *All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.