SNB to peg EUR/CHF at 1.25 rumour says; Pressures after SECO forecast?

Rumors about a new SNB movement are breaking the market today: the Swiss National Bank is said to be considering to establish a new floor on the EUR/CHF at 1.2500. The success of the latest peg to 1.2000 has spurred the market who bought the rumor and launched the Swiss Franc strongly down. 

This morning the Swiss government downgraded his economic outlook for 2011 to 1.9% and 0.9% in 2012 on the back of a strong Swiss Franc. The previous forecast in June was a GDP rises of 2.1% for 2011 and 1.5% during 2012. "The economic outlook for Switzerland has deteriorated for Switzerland over the past few months," says the official SECO (State Secretariat for Economic Affairs) statement released today. They believe that the "unfavorable foreign trade conditions" and the "high valuation" of the CHF will damper the Swiss economy even "after introduction of an exchange-rate floor to the Euro."

The SECO forecast also underlines that the exports during 2011 will be lesser than previously estimated in June. The Government expects now an increase of 3.2% in exports during 2011 (previous 4.6%) and 0.7% in 2012 (previous 3.0%).

"The rumor has not been unsubstantiated but given the success of the 1.20 peg in halting the Franc's rise", comments Kathy Lien, Director of Currency Research for GFT, "the SNB could very well be aiming for the stars with a 1.25 peg."

The Swiss Franc has plummeted across the board. EUR/CHF has rocketed from 1.2060 to 1.21.80, to retest Sept 9 highs, while the USD/CHF jumped from day lows are 0.8790 to 0.8870, and the GBP/CHF rallied from 1.3825 to 1.3970.

"Rumors had busted the USD/CHF towards 0.8921, a couple of pips below the 4 month high set past week," comments Valeria Bednarik, FXstreet.com Chief Analyst. "Bias remains bullish in the cross despite technical indicators are mostly saturating just above their midlines both in 1 and 4 hours charts, showing a limited bullish momentum. 20 SMA in the 4 hours chart lies around 0.8770, so the upside," Bednarik continues.

"So the upside is open as long as above this last value," Bednarik concludes. "Currently retreating from mentioned high, pair needs to overcome the 0.8940 static resistance level to attempt a test of the 0.9000 price zone."

The market has launched a rumor and the market has bought it. The SNB has 'declined to comment' it and the CHF is falling. 

Check out the first SNB peg-action of Sept. 6th

• The SNB comes to play and sets EUR/CHF minimum at 1.2000 by Mauricio Carrillo

IMF lowers growth prospects as FOMC discusses actions

The IMF released the World Economic Outlook report in which it lowered growth prospects for advanced economies, particularly the US. Global growth forecast was also revised, to a moderate 4% in 2011 and 2012. At the same time, the FOMC is debating actions the Federal Reserve could implement to boost US economy.

The IMF warned against hasty budget cuts in the US and mentioned that the Fed should be ready to act. The institution now forecast that growth in the US will be of 1.5% in 2011 and 1.8% in 2012 (down from previously estimated 2.5% and 2.7% respectively). Growth forecast of most of the advanced countries were revised lower, but the US forecast suffered the biggest change. “Real GDP growth in the major advanced economies –– the United States, euro area, and Japan–– is forecast to rise modestly, from about ¾ percent in the first half of 2011 to about 1½ percent in 2012, as the effects of temporary disturbances abate and the fundamental drivers of expansion slowly reassert themselves,” the report stated and added that relative to the previous report, release in June, “the most noteworthy revision is the reduction in the real GDP growth forecast for the United States, by 1 percentage point over 2011 and 2012.”

It was mentioned that the fiscal priority in the US and also in Japan, should be the implementation of a credible and well-paced medium-term consolidation program that focus on long-term debt sustainability. “For the United States, the main priority is to soon launch a medium-term deficit reduction plan so as to stabilize the debt ratio by mid-decade and gradually reduces it thereafter under realistic macroeconomic assumptions.”

It supported Barack Obama’s plan to create jobs, saying that it would support the economy in the short-term but warned that it must be flanked with a strong medium-term fiscal consolidation, that limits spending and seeks higher revenues.

FOMC debates

The Federal Reserve started on Tuesday its 2-day meeting to discuss monetary policy. Some members of the FOMC are looking for further monetary stimulus. While some argue in favor of more purchases, others look for different, more moderate measures, like “operation twist” and / or, lowering the rate the Fed pays to banks for excess reserves. The outcome of the meeting is not clear because there are also some members that oppose further stimulus.

At the Danske Bank, they expect the Fed to take action by changing it portfolio toward longer maturity government bonds (Operation Twist) as the deterioration in the economic outlook continued in the last months. “This strategy could buy the Fed some time, to see if economic data improves over the coming months; ff not, we expect to see some version of QE3 within the next six months,” added analysts from the Danske Bank.

On Wednesday, markets will hear from the Fed, ending weeks of speculation

Obama presents his plan to reduce deficit amid market nervousness

Barack Obama outlined his plan for reducing the federal deficit in a speech at the White House as markets tumbled in Wall Street and Europe. Obama ask also for a quick approval of his jobs plan presented last week.

According to Barack Obama his plan would reduce the deficit by $4 trillion and mentioned that the US has to live within his means. He said he was waiting to sign into law his job plan saying that his bill agree with the Republican and Democrat view and it would not add to the national debt.

He outlined that for every $2 in tax cuts there will be a $1 in more revenue, from tax hikes. The plan is part of his recommendation to the bipartisan congressional debt reduction committee. The program includes a $1.5 trillion increase in revenue, a reduction in discretional spending of about $1.5 trillion and a $1.1 trillion cut from the war in Iraq and Afghanistan.

The US President also announced a future reform to Medicaid and Medicare and a reform to the tax code. He also argued that he was not going to sign any bill that reduces the deficit by only cutting spending arguing that the reduction has to come by both, and increase in revenues and cuts in spending, pointing to a tax hike to millionaires. "This is not class warfare, it’s math, the money has to come from some place,” Obama said. He promoted the “Buffett Rule" that seeks people who earn more than $1 million to pay the same tax rate as those who earn less.


More political talks and discussions are expected as Republican leaders continue to oppose to any tax rate hike. The party has the control of the House of Representatives so an agreement between Democrats and Republicans is needed in order for the propositions to pass.

Before Obama’s speech, the National Association of Home Builders, released its housing market index that showed a decline from 15 to 14 in August. Market attention remains focus on the results on the 2-day meeting of the FOMC that will start on Tuesday. Market is expecting some kind of announcement from the Fed in order to boost US economy that is growing at a disappointment rate, not enough to reduce the unemployment rate.

Meanwhile stocks started the week with an important slump amid concerns over the near-term future in Greece and on worries about the global economy. In Europe, the FTSE 100 lost 2.03%, the CAC 40 3.00% and the DAX 2.873%, while in Wall Street, the Dow Jones is falling 1.65% and the Nasdaq tumbles 0.96%. Both indexes moved off session lows after Obama’s speech. Treasuries are rising and the yield on the 2 year bond hit a record low earlier.