An extreme decision of the Central Bank of Switzerland
Two days ago, in quite comfortable circumstances, we were speaking about the European Court of Justice, which was expected to decide the constitutionality of the OMT program. The time has come and the Advocate General Cruz Villalon announced the legitimacy of the program. This was the much-awaited announcement which would have confirmed somehow the ECB’s decision to implement the QE. Most probably, the ECJ’s resolution was, in fact, a warning signal for the 1.2000 cap on EURCHF, which SNB was defending with high costs. Suddenly, the Swiss officials realized that the fight with the demand for Swiss francs was as lost. Accordingly, at an unscheduled emergency meeting, the SNB decided to lower the interest rate to -0.75% and to discontinue the minimum exchange rate. Nobody expected this decision to come and the reaction was unbelievable. In a few minutes, the EURCHF was down to 1.0122 while the USDCHF fell to 0.8723. During the day, the market adjusted itself, but later in the night the depreciation deepened for the EURCHF to 0.9737 while for the USDCHF down to 0.8396.
What these decisions mean for the market? Well, it may warn the investors about the fact that ECB’s officials are seriously preparing to announce the QE. Thereupon, we may think that the 10098.3 highest level for DAX would be in danger to become a support level, the EURUSD will be running to the 1.1500 support level or even lower and gold, of course, will have its reasons to advance in the upward trend.
On the other side, the oil market seems to be gaining ground. Yesterday the market for WTI reached the 51.25 resistance level while the Brent went up to 52.38. The explanation was that traders covered themselves on expiring options. Immediately after that, the OPEC cartel announced that annual growth of the supply will be slower than previously estimated at the low price of oil will lead to less drilling in the United States. What if the market reached the bottom of the descending trend? The picture is starting to lose its bearish look so, in the long term, we should be attentive to possible positive movements.
Gold also regains its strength by climbing up to 1266 dollars per ounce. The Swiss decision together with the other European problems may add more dollars to the price of gold.
Today we should be attentive to the publishing of the CPI and core CPI for the United States, as well as at the UoM Consumer Sentiment report. After yesterday’s disappointment with the unemployment claims up to 316K and the monthly PPI in the negative zone at -0.3%, the market participants are hoping that the sequence of good news will be restarted.