SNB Invervention Threats Gather Steam as Franc Target Rate is Floated

The Swiss Franc continued its rapid deterioration as reports emerged that the Swiss National Bank was preparing to set a temporary target exchange rate against the Euro.

Fundamental Headlines

• Swiss Franc Slides Amid Target-Setting Talk – Bloomberg

• U.S. Stock Futures Climb; S&P 500 May Rise – Bloomberg

• Debt Crisis Could Be Turning Point for U.S.-China – CNBC

• Germany and France Rule Out Eurobonds – Financial Times

• Risk Assets Draw Buyers as Summer Storm Abates – Financial Times

European Session Summary

The Swiss Franc continued its rapid deterioration across the major currencies in the overnight session, as reports emerged that the Swiss National Bank was preparing to set a target exchange rate of 1.1000 for the EUR/CHF. The target rate is expected to be only a temporary measure, in order to help the Swiss export sector, which has lost significant work due to the higher cost of Swiss goods.

EUR/CHF Hourly Chart: August 5 to August 15, 2011

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Similarly, the resilient Franc, particularly over the past three months, has weighed on the Swiss Market Index, falling as much as 28.91 percent from its May high; the index remains 18.83 percent lower over the past three-months, as intervention rumors have propped up the SMI.

Pre-North American Session

In data ahead of the North American session open, a U.S. Treasury report showed that confidence in American economic policy – fiscal and monetary alike – deteriorated in June, as the net buying of long-term equities and government securities fell to $3.7 billion from $24.2 billion in May. The considerably weaker figure suggests that international demand for American securities was significantly impeded by the U.S. debt deadlock, the net result of which was a downgrade by Standard and Poor's on August 5. The key figure to examine would be the October print of the Treasury's report, which will reflect transactions in August.

Thus far, on the day, the Dow Jones FXCM Dollar Index has traded lower, holding near session lows at 9481.74, at the time this report was written. The index traded as high as 9540.76, after opening at 9529.31. The soft TIC data previously discussed could weigh on the Dollar throughout the session.

24-Hour Price Action

Key Levels: 12:45GMT

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

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