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Change to sight deposit rules alternative to intervention to weaken CHF

EURCHF
  • The change to the SNB's sight deposit rules effectively are a bit like intervention through the back door.
  • Effectively this is akin to reverse tiering - so you can remunerate the amount that banks hold for domestic reasons at the policy rate, and set the level so that any inflows from foreign investors that are then going to be parked in banks remunerated at zero.
  • It makes CHF less attractive from a rates perspective, but you don't have to increase your balance sheet or money supply by doing so (intervention would do this by creating the CHF to sell to buy the EUR).
  • It also helps reduce the balance sheet because banks will be less inclined to hold so much in terms of excess deposits
  • The disadvantage is that by doing this, the full rate hike doesn't get passed through to the real economy.
  • From a technical pattern perspective, a strong daily close today, would highlight a bullish engulfing candle. This could be an important short-term signal and highlight scope for a stronger corrective bounce near-term.
  • Resistance levels to watch are:
    • RES 1: 0.9750, the 50-day EMA
    • RES 2: 0.9787, the Sep 6 high
    • RES 3: 0.9867, the Sep 2 high and key resistance
    • Today’s low of 0.9467 is the key short-term support and the bear trigger
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