Yesterday’s move in the Swiss franc was as ferocious a move as I can remember in all the years I can remember, and to some extent the most disturbing, given that it came in what is ordinarily an extremely liquid easily tradable G10 currency. The longer term ramifications are just as concerning with respect to central bank credibility and policy, given that not less than a few days ago the SNB was insisting that the peg still remained a key pillar of monetary policy, when the reality was it was about to melt away quicker than a chocolate fireguard. It also speaks to a wider concern that central banks could well be starting to lose their grip on the markets as global deflationary forces and the problems in Europe start to ripple out to the economies that orbit around it. The bigger worry is that yesterday’s volatility is a precursor to even greater market instability as the ECB struggles to reignite an economy whose problems are acting as an anchor around the global economy. Ultimately central bankers can create a bridge to help in the reform process that needs to be undertaken but politicians have to want to cross it and in Europe there is no evidence that this is likely to happen, and this could have significant consequences for markets, volatility and those economies that orbit around Europe. The Polish Zloty and Hungarian forint have also been hit hard in this yesterday’s fall out, and could well be hit further. The catalyst for yesterday’s decision it seems was Wednesday’s announcement by the European Court of Justice regarding the legality of the ECB’s OMT program, which on the face it appears to have given the green light to the announcement of a substantial easing program from the European Central Bank next week. The speculation is that the SNB probably received a tap on the shoulder from the ECB courtesy of one of Mario Draghi’s mobile phones to inform them that their cap was about to be engulfed in a tsunami of new ECB stimulus. Swiss stock markets paid the price, sliding sharply lower on concerns that company margins would be decimated on the back of a stronger currency, while other European markets surged on the prospect of a much weaker euro. There could also be a cost in Swiss jobs if the franc appreciates to such an extent that companies decide to relocate some parts of their operations in order to manage their costs. The big concern now is that the ECB now has to deliver in a substantial way and it is hard to see how they can do that if they are not unanimous in any decision to act. It was noteworthy yesterday that Bundesbank President Jens Weidmann chose not to comment at length, other than to reiterate his previous comments. On the economic data front today’s final EU CPI numbers for December are expected to affirm a headline number of -0.2%, while core prices are expected to remain at 0.8%. While European markets enjoyed a positive day yesterday with the German DAX revisiting the 10,000 area again, US markets slid back for the fifth day in succession, as oil prices fell back sharply after a brief flirtation above the $50 mark. It also appears that disappointing earnings alongside global growth concerns are giving US investors some pause for thought and as such we look set to see European markets open lower this morning. There is also the small matter that some of the more recent US economic data appears to suggest that the US economy may not be as robust as first thought, and a weaker than expected December CPI number later today could well prompt speculation that deflation could well be starting to take hold in the US as well, and that the widely anticipated rate hike that markets are expecting on the back of an improving economy may well not be forthcoming. Expectations are for a month on month decline of 0.3%, while the year on year rate is expected to fall to 0.7%. EURUSD – the rebound in the euro scenario didn’t play out as the euro dropped even further yesterday posting a low of 1.1568 before rebounding. We now look set for a move towards 1.1205, which is 61.8% retracement of the entire move from the 0.8230 lows and the 2008 highs at 1.6020. Any rebound looks likely to find resistance at 1.1750 and 1.1880.. GBPUSD – the pound has held up fairly well despite the lack of upward momentum and while we hold above 1.5090 the prospect of a move back towards 1.5320 remains. A move below 1.5090 targets the lows last week at 1.5035. EURGBP – we saw a six year low at 0.7628 and could well be set for further losses towards the March 2008 lows at 0.7590. With momentum remaining negative and rebounds should find selling interest at 0.7690 and 0.7800. USDJPY – we look to be closing on the 115.60 area, a break of which could well see a sharp fall towards 110.00. Any pullbacks look likely to find resistance at 118.00. We would need to see a recovery in US 10y yields above 2% to suggest a turnaround and return towards the peaks. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.