EUR/CHF approaches parity ahead of the key SNB decision
- The EUR to CHF pair is nearing its parity level.
- The Swiss National Bank is expected to hike rates by 0.50%.
- This will be the first decision after the collapse of Credit Suisse.
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The EUR/CHF exchange rate continued its bullish trend as the Swiss National Bank (SNB) interest rate decision. It jumped to a high of 0.9978, the highest point since March 3 of this year. It has jumped by 2.87% from its lowest level this month. The USD/CHF and the GBP/CHF prices have also drifted upwards.
SNB interest rate decision
The SNB will deliver its closely-watched interest rate decision on Thursday. This will be important forex news because of the current state of the market and the Swiss banking sector. Therefore, traders will watch out for any surprise change of tone by the central bank.
The Swiss economy has been under intense pressure in the past few days as focus remain on the banking sector. During the weekend, Swiss authorities engineered the takeover of Credit Suisse, the second-biggest bank in the country by UBS.
UBS paid $3.3 billion for the iconic bank while Swiss authorities provided guarantees for any legal challenges that the company will face. The impact of this buyout are severe considering that many bondholders like Pimco and Lazard were decimated. Shareholders were also nearly wiped out.
Therefore, these actions could push wealthy foreigners from Swiss banks, which are well-known for their safety. In an interview, Mark Mobius, the veteran emerging market investor, said that some individuals were starting to move their funds to Middle East banks.
Still, as I wrote here, analysts believe that the SNB will maintain a hawkish tone by delivering another 50 basis point rate hike. If this happens, the bank will bring the official cash rate to 1.5%. It will be the third consecutive rate hike by the SNB.
The SNB decision comes a day after the Federal Reserve hiked interest rates by 0.25%. A week ago, the ECB hiked by 0.50% and pointed to more increases in the next meetings.
In my last EUR to CHF forecast, I wrote that the pair would continue rising as the Swiss banking came under pressure. This view was accurate as the pair has maintained a strong bullish trend. On the 4H chart, it has managed to flip the resistance at 0.9926 into a support. It has also moved above the 50-period exponential moving average while the Relative Strength Index (RSI) has moved close to the overbought level.
Therefore, the pair will likely continue rising as bulls attempt to move above the parity level of 1.00. Also, there could be some volatility ahead and after the SNB decision.
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