As you may know, I’ve been following the Swiss central bank intervention story for the past couple of months now. In fact, I predicted the first intervention. (You can read the full story on that here.)

This is huge folks. The Swiss National Bank hasn’t intervened like since 1992. The Swiss central bankers are jumping in the markets because they’re concerned about one currency pair…

Coincidentally, it’s the cross-rate pair I’ve been watching like a hawk: the euro/Swiss franc or EUR/CHF.

Oh sure, the central bank is concerned about other exchange rates too. But this one is the one that really makes or breaks their exporters.

As I explained in June, the bulk of Switzerland’s exports go out to the rest of Europe (even more so than to the U.S). So if the Swiss franc suddenly becomes expensive in euro terms, that can seriously hurt Switzerland’s manufacturing sector.

Focused on “Selling Francs & Buying Euros”

The Swiss National Bank hasn’t been exactly quiet about their intervention plans.

In fact, you can go right to the Swiss central bank’s website and find out that the bank has been both selling Swiss francs and buying euros.

According to the Swiss central bank’s website, they’ve bought about $6 billion U.S. dollars and only about $40 million British pounds. But the Swiss National Bank has bought a whopping 11 billion euros! So we can clearly see where the focus is (when they’ve bought about twice as much in euros as dollars).

Some ask, “Could this government manipulation” ultimately hurt the Swiss franc?” My response? Absolutely not.

Here’s why… When Switzerland’s currency drops in value and the Swiss central bankers force an uptrend in the EUR/CHF (as they’ve been trying to do), then the Swiss manufacturers can sell more exports to the rest of Europe and the Swiss economy flourishes.

The Swiss National Bank has intervened in the currency markets before to help the local economy. The only difference is before they were doing the exact opposite. The Swiss National Bank was selling Swiss francs and buying euros while the EUR/CHF pair was still in a downtrend.

However, once this cross-rate (read: “non-dollar currency pair”) pushed its way into an uptrend, the Swiss central bankers started closely watching this pair’s price.

As a currency trader, I started watching this pair too. You can see the uptrend on the chart below…

The Swiss Franc Makes a Break for It…

The Trend is Finally the Central Bank’s Friend!

Many times when central banks are intervening, they have a tough time beating the trend that they are trying to correct.

We constantly see this in Japanese yen’s price when the Japanese central bank intervenes. They usually lose in the short term because they can’t seem to break the downtrend in the USD/JPY as the dollar falls against the stronger Japanese yen.

However, in the end, the Bank of Japan eventually wins and pushes the USD/JPY price back up…but not until months pass minimally.

Well, we’re finally at that point with EUR/CHF. In fact, I was the first one to bring it to you when the downtrend actually broke on EUR/CHF.

You see, any technical Forex trader could have called this coming uptrend. It passes any “technical metric” that you want to throw at it.

This pair is trading above its blue 50-day SMA (simple moving average) line on its daily chart. It’s above its purple 200-day SMA line. It’s also above its red downtrend line too. So any way you slice it…it’s in an uptrend.

The Ultimate Swiss Weapon in Fighting Deflation: EUR/CHF

This uptrend in EUR/CHF will do more than just improve Swiss exports.

A strong euro and weak franc will also help to finally pull Switzerland out of its deflationary CPI numbers in time. Right now the Consumer Price Index on a year over year basis is at -1.2%.

So that means that they still have deflation that must break into a positive number before inflation will creep back into the economy.

In other words, the Swiss National Bank is trying to slay the beast of deflation and so far it’s working.

Now that the trend for the EUR/CHF is on the way up, they’ll have hedge funds, pension funds and big banks come in and help them. In other words, the big money is about to start buying the EUR/CHF pair as their “trend following” systems notice this newly formed uptrend. This will help the central bank in the long run.

So they are probably “out of the woods” and so is EUR/CHF. Therefore, you should be a “buyer” of the pair if you want to take the higher probability trade.

Happy Trading!
Sean Hyman, Professor FX

P.S. If you listened when I first warned you of an intervention here in FX University you could have grabbed a quick 300-pip profit. This is exactly the type of quick profit opportunities that we unveil to our Money Traders every single week in our Money Trader alerts. Learn more about how we pick our winners here.