The Governing Council of the European Central Bank (ECB) has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year.

This attempt by injecting liquidity into EUR area banking system is meant to shore up confidence and although the actual dollar amounts are not significant the move is considered a symbolic gesture which many hope will help to ease concerns in the light of a possible Greek default. The relatively stronger European economies such as Germany and France still do support Greece in the face of a near 100% chance of such a default. It is important to note that the ECB, FOMC, and other central banks are making a unified attempt and hope that by working together, Greece and many European banks will survive this latest chapter in the debt contagion crisis that has plagued markets for so long.

As markets tend to move under the emotional reaction to news under two basic themes; ‘fear and greed’, the actual amount of USD’s provided may not have a significant impact to the Forex market. But this gesture of confidence and the market’s interpretation of this move could influence future trends on the charts. Ultimately the USD/CHF (shown below) tends to exhibit a close correlation to the level of fear and anxiety in the market place. This can be largely attributed to the relationship between the CHF and Gold, which is purchased when investors search for a safe-haven in times of unrest. However in light of recent and quite significant interventions on behalf of the SNB (Swiss National Bank), an at least artificial floor may now be present. Interestingly enough, recent swing low’s rest almost exactly on the 23.6% Fibonacci level.

In reference to the EUR/CHF, the SNB mentioned the 1.2000 as a level that would be defended. In other words, if fear sends traders and their investment capital back into the CHF currency via the Gold commodity, the SNB is ready to fight back and ultimately discourage a EUR/CHF short position. At least for the time being, this appears to have worked and created a support just above 1.2000.

So the question remains, if the recent multi-nation attempt to save Greece and Euro-area banks does in fact function as designed, then it would make sense to anticipate that traders will speculate in currencies with higher risk and/or higher yield, such as the EUR, AUD, or NZD. On the other hand, if the fear of a possible Greek (or individual bank) default returns, where may traders seek safety? Many now believe that if the traditional lower yielding currencies such as the CHF and JPY are not a good choice due to the risk of a Bank of Japan or SNB intervention, then ironically the USD may become the true benefactor. Just another example of why the Forex market continues to tell a new and fascinating story each and every trading day.

We wish you the best of luck in all your trading endeavors.