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The TLTRO-II is indeed targeted. However, the expansion of the asset purchase program also has a related significance. The program was expanded to include “...Investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets eligible for regular purchases under a new corporate sector purchase programme (CSPP)...”  The term non-bank corporations potentially cover a broad range of bonds.

What it all seems to add up to is that the ECB is shifting its focus from directly targeting disinflation and low growth to indirectly targeting disinflation and low growth by attempting to ‘un-collar’ financial sector capital. If so this removes the burden of poorly performing or non-performing existing loans from the financial sector; discounting the refinancing of a wide class of non-financial corporation and household loans. Also, there was one other subtle change in wording, in the use of the term ‘investment grade’, which is a sometimes euphemism for lower quality loans.

It should be noted that over the past year the Swiss National Bank has ‘pulled out all the stops’ in its efforts to discourage capital inflow deposits. The yield on a Swiss Confederation 10 year bond is negative; recently -0.32%. The overnight deposit facility rate is -0.75% and the three month LIBOR targeted between -0.25% to -1.25%. The next scheduled monetary policy assessment is scheduled for 17 March.  In light of the ECB action as well as the quarterly schedule of SNB assessments, one might expect at least an emphasis on intra-meeting FX intervention in the next statement. It’s unlikely that the SNB will reduce the sight rate further for several reasons. First, the US Fed may increase rates again, thus drawing capital flow away from the Franc. Second, the SNB may have to defend the Franc should polls begin to indicate an increasing possibility of UK secession from the EU, causing ‘a tsunami’ of capital inflows.

Over the past year, the SNB has had some success in reversing EUR/CHF from the January 2015 highs; however, it’s still quite a way off from the pre-decoupling 1.20 Franc per Euro goal. With the SNB suppressing rates to the edge of prudence and the ECB adding more liquidity to the Eurozone, albeit in a different way, it seems likely that EUR/CHF will continue to trade in a range of 1.07 support and 1.11 resistance into Q2.

Mike Scrive
Technical Analyst
Accendo Markets

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1 ECB Press Release 10 March 2016
2 ECB Press Release 3 July 2014