The Swiss National Bank has finally decided to bring out a big gun to its fight over strong Franc. Non only did they conduct a massive intervention, they also drew a line in the sand, pledging “unlimited Euro purchases” if the EUR-CHF drops below 1.20 again. The central bank called it “setting a ceiling” for the CHF (or floor for the most of its pairs). This means, supposedly, that interventions will continue every time the exchange rate between the CHF and the EUR gets under 1.20. What it does not mean is a peg – the Swiss Franc was NOT pegged to the Euro, at least not yet.
If Franc was to be pegged, the SNB would have to shadow all policies of the ECB, something they clearly do not want to commit to. However, if the current action proves futile and over time they are not able to contain the CHF, they might have to do just that. Interestingly, should such time come, the decision should not be too difficult. After all, the Swiss pretty much committed themselves to inflation. With prospects for the Euro bleak, chances are the SNB will have to deliver on its promise time and time again, spending, by some estimates as much as CHF 0.5-1.0 trillion in coming months. Given the small size of Swiss economy, it is a staggering amount of money.
Of course, they could succeed in achieving their goals, too, like in a similar operation in 1978. At that time the Swiss National Bank managed to keep the Franc below 80 francs per 100 Deutsche marks in the two decades through 1998, before inception of the euro by Germany. During that period, Swiss inflation exceeded the SNB’s 2 percent limit in 12 years. At any rate, all this is speculative and will be discussed plenty of times in the future. Today, the EUR-CHF jumped over 1100 pips, the biggest intervention move that I recall.
As mentioned yesterday, I had both a buy and a sell order in the USD-CHF. The buy side of the straddle was filled and my objective of 100 pips was reached easily. Obviously, I had no idea what the SNB was up to, otherwise this trade would be on for much longer… Should not complain, 100 pips is 100 pips, but I’d be lying if said I was not a little disappointed….
For right now I will stay with the theme established yesterday, meaning gold. This market just made a divergence on daily chart, with a possible sell signal on the bearish engulfing line. I went short at 1873, targeting 1800, maybe 1775. Risks are small here. Ideally, I would prefer a longer-term trade with 300-400 dollars objective, but I simply do not see one here. One more thing on the subject of the CHF- charts are distorted now, and markets are jumpy, so I will let the them settle down before making more trading decisions.
Mike K.
[...] I took a trade in this market, especially a short-term trade. It was a position on the short side, with entry at 1873. This trade was closed at 1800 for 73 points profit, which just fine for only one day holding time. [...]
[...] nicely.Kathy Lien discusses seasonality in forex trading, with September boasting some nice trends.Mike Kulej explains why the CHF ceiling is not a peg. I see it as a floor under EUR/CHF.Andriy Moraru offers a [...]
[...] A lot market observers expected Japanese financial authorities to do something after the Swiss National Bank set the intervention tone earlier this week. Because this particular action was different from a typical intervention, chances [...]
[...] Mike K. explains the effect of the recent decision made by Swiss National Bank on CHF and major commodities; [...]
[...] A lot market observers expected Japanese financial authorities to do something after the Swiss National Bank set the intervention tone earlier this week. Because this particular action was different from a typical intervention, [...]
[...] nature of this Forex market manipulation measure. Mike Kulej reminds us that the SNB has set a ceiling for the franc (or a floor for EUR/CHF currency pair) rather than a real peg of the two currencies (after [...]
[...] the Swiss National Bank. Last week the SNB drew a line in the sand by intervening in the Franc and setting a floor for the EUR-CHF at 1.2000. Interestingly, this pair did not really sell off on the Euro weakness. Still, the price is [...]
[...] the Swiss National Bank. Last week the SNB drew a line in the sand by intervening in the Franc and setting a floor for the EUR-CHF at 1.2000. Interestingly, this pair did not really sell off on the Euro weakness. Still, the price is [...]
[...] foreign reserves held by the SNB are huge, boosted even more by recent intervention. The threat of “unlimited buying” of other currencies still hangs over the markets, so those reserves could grow. Even under these [...]
[...] When the rate dropped down to the 1.10 handle a month later, the Swiss National Bank announced a trading “floor” for this pair at 1.20 and proclaimed willingness to sell the Franc in unlimited quantities in order to support it. Markets [...]
[...] news in recent weeks, suggesting weakening domestic economy, markets anticipated the SNB to raise the floor of the EUR-CHF from the present 1.20 to 1.25 or perhaps even higher, like 1.30. In fact, the expectation for this move was so high that [...]
SNB will purchase more and more Euro, so i would trade long on EUR/CHF with limits at 1.2089 and 500 pips target.
[...] target of earlier interventions, fell to the 1.21 handle, suggesting that markets are ready to test the 1.20 floor set by the SNB. We are still about 100 pips away and talk about a test could be premature, but that is what charts [...]