EUR/CHF Forecast Dec. 22, 2011, Fundamental Analysis

It was a very cautious and steady day for the EUR/CHF which marginally remained flat despite the broad volatility for the franc and the euro in particular versus the dollar on the ECB auction.

The European Central Bank said it will lend euro-area banks 489 billion euros of three-year loans (1,134-day loans) at the average rate of its benchmark rate –currently at 1.0%- over the period of the loan. The loans will start tomorrow as the bank said that 523 banks asked for the funds at the auction.

Investors saw the amount at the upper range of forecasts as surprising and high which increase the fears over the stability of the sector and the outlook for the euro area. Banks obviously need cash and till now investors still can’t tell now what the money was for or where will it be used.

Both economies lack economic fundamentals and the pair is expected to continue trading within its tight range.

Volatility will remain as the euro area enters holiday mode early with the lack of major releases and events as the market will focus on the aftermath of the ECB.