The Swiss National Bank made a powerful move to peg the euro to the Swiss. EUR/USD couldn’t stay on the sidelines and leaped just as low critical support was about to be challenged.
The SNB announced a minimum exchange rate for EUR/CHF: 1.20. This sent EUR/UCF immediately from around 1.10 to above 1.2150 and now still above 1.20. As the Swiss authorities are targeting the euro, which is psychically all around them, the common currency was saved from falling below the long term range against the dollar.
EUR/USD already dropped to just above 1.4030 – the critical support line that helped the pair bounce in the past, just above the round number of 1.40. Looking at the bigger picture, euro/dollar was trading in a wide range between around 1.40 to around 1.45.
In recent days, it was falling due to complications of the European debt crisis, which already threatens to topple European banks and is very widespread.
But at least for now, the Swiss move, which is very dramatic, saves the pair from falling lower. Ongoing defense of EUR/CHF 1.20 will help the euro.
Will this hold?
But also another thing can happen: The Swiss authorities can defend EUR/CHF and instead of strengthening the euro, this will weaken the franc against the dollar as well. USD/CHF also made a huge leap above 0.84.
If the European crisis continues in full force, EUR/CHF might be defended, but EUR/USD could still fall below 1.40. And let’s not forget: the powers of the SNB have proved to be limited in the past. It’s important to remember this during the dramatic move.
EUR/USD is now at 1.4179. It jumped from 1.4038 before the move to the 1.4282 resistance line and is now between the 1.4160 and 1.4220 lines.
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