Euro rose to two-week highs against the Dollar. Exceeding 1.0930, the single currency is close to recovering its losses from the beginning of the month to the dollar. In this case, more than 1.2% growth in one day is likely due to the Swiss National Bank protecting Franc from strengthening.
The Swiss franc against the euro increased by 4.5% since December last year, showing a similar growth in the first four months of this year. For approx. a month ago, however, EURCHF found its bottom in the area just above 1.05. This is slightly below the 2017 made. The last time such levels were observed about five years ago.
There are several reasons why Franc is valued for the euro. The economy of the European region began to decline just after the first ramparts of the trade war. The foreign exchange market reacted even earlier and started selling the euro right after the first Trump threats. Over two years, the euro lost 12.5% to the franc. The decline accelerated after the ECB began to soften the policy. At the same time, the SNB remained in the same positions and kept a deeply negative course.
Earlier, from September 2011, the SNB introduced a ceiling for EURCHF at. 1.20, which was first abolished in January 2015. At that time, this benchmark formed a pattern of behavior for traders who bought EURCHF, earned on the interest rate differential and had the SNB as an ally on their side.
This story ended tragically for many traders and some brokers when the SNB suddenly abandoned this crap. This time, it works without declaring exact levels of support, but more and more dealers appear to have captured the new pattern.
These SNB interventions also have other consequences. The Swiss franc is often an indicator of demand for protective assets, showing growth at a time of great market uncertainty. Expansion of Euro against Franc pushes up the single currency, which under normal circumstances corresponds to an increased demand for risks.
Now this indicator looks broken. The current rebound of EURCHF from 1.0500 to 1.0650 may be due to the favorable market dynamics as well as the purchase of Euro and Dollar for Franc by the country’s central bank. And this is weakly combined with the period of healthy and free-moving markets, which creates doubts that the markets are finally facing growth.