Switzerland is not known as a country that produces drama or geopolitical turmoil. However, the monetary policy of its Swiss National Bank (SNB) has attracted negative attention around the globe, and especially in the United States.
The Swiss franc historically suffers from a tendency of investors buy the Swiss franc as a safe haven, which drives the currency value higher and ultimately makes it harder for Swiss businesses.
To counter these trends, the SNB introduced negative interest rates and increased foreign currency investments as it tries to disincentives investors from holding francs. Moreover, the Chairman of the bank, Thomas Jordan, warned that the central bank may even take its interest rates further into negative territory. The key interest rate sits at -0.75%, which is one of the lowest rates in the world.
“The phase of low interest rates could last even longer, and a further easing of monetary policy may also be necessary under certain circumstances,” Jordan said to a local newspaper last week.
Actions such as this have contributed to the decision of the United States Treasury to add Switzerland to its watchlist of currency manipulators. The Swiss franc reacted to the news by further gaining against the EUR and the USD.
Neil Mellor, a currency strategist at BNY Mellon, believes that the inclusion on the watchlist might discourage the SNB from intervening.
“The market’s natural inclination would be to buy the franc,” said Mellor.
On the other hand, Jordan reiterates that the actions of the SNB’s part are not aimed at other countries.
“Our interventions are never aimed at weakening the franc at the expense of other economies,” Jordan added.
Technical analysis: Lower levels in sight
Technically, the USD/CHF lost more than 3.5% since the beginning of December. The latest move lower has pushed the pair below the 5-year ascending trend line (the purple line), which can easily open the road for more losses.
The bears are now likely to target the zone around $0.9550 should the USD/CHF selling intensify. This zone also offers an opportunity to those waiting to buy USD/CHF as it offers a good risk/reward ratio.
Looking mid-term, USD/CHF can hit $0.90 – $0.92 levels if investors continue to buy the Swiss franc and ignore the SNB actions and warnings. The resistance is located at $0.9850 in case the USD/CHF stages a relief rally.
Investors continue to ignore warnings of the SNB as they are still buying the Swiss franc. The U.S. Treasury placed Switzerland on the list of currency manipulators, which triggered another wave of franc buying.
Technically, the bears will target $0.9550, while a realistic mid-term outlook can see prices hit $0.90 this year, especially on the worsening geopolitical outlook.