Mid-Day Report: Swiss Franc Sold Off after Surprised SNB 100bps Cut

Swiss Franc is sold off sharply across the board after surprised rate cut from Swiss National Bank today. The SNB cut three-month Libor rate by 100bps to 0.5-1.5% in another unscheduled meeting today. The effective mid point is thus lowered to 1.00%. The bank acknowledged that "International economic conditions have worsened appreciably, bringing a higher risk of a marked slowdown in economic activity in Switzerland next year." Also the bank promised a "generous and flexible" supply of Swiss Franc to the markets. USD/CHF is sent sharply higher to as high as 1.2226 after the release and remains firm in early US session.

Elsewhere, dollar remains firm despite release of worse than expected jobless claims. Initial claims surged again to 542k, highest level since 1992. Continuing claims rose above 4m to highest level since 1982. Dollar and yen remain firm on risk aversion as futures point to lower open in US stock markets. In particular, USD/CAD soars to as high as 1.2653, following crude oil's sharp fall by over 5% to as low as 50.62.

Other data released today saw UK retail sales fell for a second consecutive months by -0.1% mom in Oct. Though, the data was much better than expectation of -0.9%. Swiss Trade surplus widened to 1.84b in Oct. Germany PPI was flat in Oct, with year-over-year rate moderated from 7.8%. Japanese trade balance turned deficit again to -63.92b in Oct.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.1983; (P) 1.2014; (R1) 1.2062; More

USD/CHF's rise extends further to as high as 1.2226 today and at this point, intraday bias remains on the upside as long as 1.2097 minor support holds. Further rise is still expected to next target of 100% projection of 1.0693 to 1.1746 from 1.1208 at 1.2261. Firm break there will set the stage to 161.8% projection at 1.2912. On the downside,below 1.2097 will turn intraday outlook neutral first and bring pull back. But short term outlook will remain bullish as long as 1.1549 support holds.

In the bigger picture, medium term rise from 0.9634 is still in progress and has taken out 1.1878 (61.8% retracement of 1.3283 to 0.9634 at 1.1889). Sustained trading above there now encourages further medium term rally to test 1.3283 high. On the downside, break of 1.1208 support is needed to indicate that such medium term rally has completed. Otherwise, medium term outlook will remain bullish even in case of deep pull back.

Forex News Digest

• Overnight Express: Stocks Melt, Bonds Spike, SNB Cut 100 Bps Intermeeting
• Swiss National Bank Cuts Benchmark Rate by 100 Bps
• German, Euro Zone Economies to Stagnate in 2009, Says Germany's BdB
• UK Retail Sales Surprise to the Upside in October
• Euro Gains Against Dollar, Yen as SNB Rate Cut Boosts Bets ECB to Follow
• Australian, New Zealand Dollars Slide Most in Week as Risk Aversion Grows
• Canada's Dollar Falls to Lowest in 3 Weeks as Stocks, Crude Oil Decline
• Fed to Cut Rates to Zero in January on Deflation Risk, JPMorgan Predicts
• Bernanke May Find Deflation `Back on the Table' as Threat to U.S. Economy
• Pound Declines Against Dollar, Euro as Retail Sales Drop for Second Month
• Swiss Central Bank Unexpectedly Lowers Benchmark Rate by 100 Basis Points

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