Are the Swiss in trouble? EURCHF and 1.20

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The Euro dropped for the fourth consecutive day as sovereign debt woes have begun to move back into the foreground. These concerns have forced the EURCHF to momentarily breach the 1.2000 floor – will the Swiss National Bank intervene?

Data was sparse in the overnight, with the most prominent event being the Bank of England rate decision. As expected the Monetary Policy Committee held the key rate at 0.50 percent where it has been since March 2009. Further information will be disclosed when the BoE meeting minutes are released on April 18. However, the market is not abuzz over whether or not that BoE will extend or cut short its quantitative easing program (although that is very important); instead the focus is back on the Euro-zone where the secondary bond markets are starting to show stress among the periphery.

After a poor Spanish bond auction yesterday, there was no rest for the weary early this morning as periphery sovereign debt slid. Italian and Spanish debt has been under increasing pressure the past few weeks, with their respective 10-year bond yields rising to 5.422 percent and 5.709 percent. By no means are their respective yield curves inverted yet; but stress is more prevalent on the short-end signaling rising concerns in the near-term.

The Euro, as expected, has taken the brunt of the markets’ distaste for sovereign debt woes, and the EURUSD has now fallen for four consecutive days. But this isn’t the news; the news is that the EURCHF briefly ticked below the 1.2000 currency floor set in place on September 6 by the Swiss National Bank. As I noted weeks ago and as recently as yesterday, not only was the EURCHF likely to test 1.2000, but as the EURCHF approaches 1.2000, the SNB is likely to become more active in the markets. Indeed, with the Euro-zone concerns pushing the EURCHF below 1.2000 if only briefly, the SNB was forced to step in and intervene, pushing the EURCHF back up above 1.2020.