The Swiss National Bank today announced another raft of measures to try and dampen pressure on its currency. This included:

1. Boosting liquidity to CHF200bn from CHF 120bn - essentially flooding the markets with Swissie
2. To continue re-purchasing outstanding SNB bills (more QE)
3. Using FX swaps to directly weaken the Swissie

After weakening significantly during the Asian and early European sessions the Swissie had a sharp reversal after the SNB's announcement. The markets had expected some firmer measures from the Bank including a peg to the euro and negative interest rates. Today's measures don't have as much bite as a euro peg, for instance and so the market seems to be using the SNB announcement as a way to enter into Swissie longs at a better level.

EURCHF fell from 1.1550 to below 1.1300 at the time of writing. Support lies at 1.1195 - 21- day moving average, ahead of 1.1150 - 100-hour moving average and then 1.1050.

The markets are testing the SNB's resolve to really weaken the Swissie and its task is immense. Political instability and an over-indebted Eurozone are pushing people into Swissie, and at the moment the threat of intervention from the SNB seems less risky than going long the euro. The lack of progress at yesterday's tete-a-tete between Merkel and Sarkozy is only adding to the Swissie's safe haven status.

But investors need to be on the guard. Intervention risk is a major contributor to current market volatility and investors cannot dismiss it. The SNB seems very determined to do what it can to reduce pressure on its currency and it still has more extreme cards in its hand that it could play depending on market conditions. So while there may not be a euro peg today that doesn't mean there won't be one tomorrow. In fact central banks in the past have preferred to announce pegs at the weekend when markets aren't trading so that banks and institutions have time to prepare their systems. So intervention risk may remain high for some time yet.

But right now the markets aren't concentrating on whether the Swissie is overvalued or not, investors want a harbour from the Eurozone's debt storm and they are finding that in the Alpine nation.

Short-term technical outlook for CHF crosses:
EURCHF - approaching a key support zone around 1.1200.


USDCHF: 0.7785 should act as strong support after a sharp move lower


GBPCHF: Testing support at 1.2910 - the 55-hour sma.


As you can see, none of these crosses look oversold at this time.

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Kathleen Brooks| Research Director UK EMEA |

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