On 12 March 2009, the Swiss National Bank announced a 25bps cut in the official three-month franc LIBOR rate to a range of 0–0.75%, the lowest level since 2003. At the same time, the SNB initiated quantitative easing through the purchase of corporate bonds and worked to weaken the franc through direct intervention in the forex trading market.

Immediately upon the announcement, the franc crosses surged. SNB representatives were seen buying foreign currencies and selling francs on dealing platforms, pouring at least CH₣ 3Bn into the operation. Within 22 minutes, EUR/CHF zoomed from 1.4875 to 1.5300, an appreciation of 425 pips and the single largest gain (2.6%) inside one day since the Euro’s launch in 1999. GBP/CHF climbed from 1.6000 to 1.6450 (450 pips) and USD/CHF from 1.1600 to 1.1960 (360 pips).

The beneficiaries of these actions are numerous. Swiss exporters, hurt by the franc’s steady appreciation as a safe-haven currency, will gain some relief and competitiveness in what little remains of global export markets. Central and Eastern European countries, particularly the potentially explosive “C4” nations of Hungary, Poland, Slovakia, and the Czech Republic, all stand to gain on repayment of outstanding loans funded in Swiss francs, with monthly premiums eased with the easing of the exchange rate. Perhaps most important of all, Swiss banks are spared the potential defaults and ongoing losses inherent in that scenario, hopefully preventing further currency crises, an extension of the credit crunch, and even deeper economic turmoil.

Another beneficiary should be the Swiss economy. The SNB’s 250bps of rate cuts since October 2008 have not been fully transmitted through the credit system to the economy due to forex fluctuations; however, this enforced depreciation of the currency should ameliorate that tendency. With Swiss GDP predicted to fall as much as −3.0% in 2009, inflation to remain roughly flat, and unemployment to touch 5.2% despite two stimulus programs to date, the SNB’s decisive actions should at least be understandable even to those caught on the wrong side of the trade.

The final potential beneficiary, however, is the retail forex trader. The SNB chairman, Jean-Pierre Roth, stated categorically to the Financial Times on 16 March that the franc will not be allowed to appreciate to such an extent again, particularly not against the Euro, providing a baseline floor of support for EUR/CHF.

Although M. Roth did not name the actual point at which further intervention would be triggered, Thursday’s action began with EUR/CHF at approximately 1.4800 after opening the forex trading week at 1.4604. Should the currency pair approach those levels again, traders can expect further intervention and a potentially profitable ride back up.

On weekly charts, as shown below, the SNB action has pushed EUR/CHF into a possible double bottom formation:

The baseline of the double bottom would be asymmetrical; however, the neckline at 1.5650 is clear enough. Should the currency pair break and hold above that point, a run up to the next level of resistance at 1.6000 is possible. All technical analyses at this point in time, of course, are dependent upon the continuation of the uneasy steady state currently achieved by financial markets, and forex traders are urged to keep their stops tight.