What the EUR/CHF Currency Floor Teaches About False Stability
See how one policy promise shaped the chart—and what happened when the buyer defending it stepped away.
2 min read
A price floor is different from normal support
EUR/CHF shows how many Swiss francs it takes to buy one euro. In 2011, the Swiss National Bank said it would keep EUR/CHF above 1.20. When price fell toward that level, the bank could buy euros and sell francs. Normal support forms when traders choose to buy. This floor depended on the SNB continuing to defend it.
What can you see before pressing Play?
Look at the chart from October 2014 to January 2015. Every time EUR/CHF falls toward 1.20, it stops. Many candles sit just above the same price, and the daily moves become smaller. To a trader, the market looks quiet and the floor looks strong.
The SNB was holding price above 1.20. Before pressing Play, ask: what could happen if that buyer suddenly stepped away?
What happened when the SNB stepped away?
On January 15, 2015, the SNB announced that it was ending the floor. The candle opened at 1.20089, fell as low as 0.84989, and closed at 0.99357. The close was about 17.3% below the open. After the chart adjusts its price scale, several quiet months look almost flat beside this one candle.
The long lower wick shows that price also bounced far above the day's low. However, a daily candle cannot show the exact order of each move or the prices available for real trades. See our guide to reading a chart if the candle body and wick are unfamiliar.
Why this matters to a trader
When a level holds unusually well, ask what is holding it. Is it supported by many buyers, or does it depend on one bank, company, or rule? The chart can show you the level, but it cannot answer that question by itself.
The lesson is not that traders should have predicted the SNB announcement. Quiet price action can depend on one important source of support. If that support disappears, recent candles may make the next move look safer than it is.