When will the SNB be forced to intervene?
It begs the question how far a) the current situation in Ukraine/Crimea will escalate and b) how close that may bring the SNB having to defend its 1.2000 EURCHF peg.
I posted this article as events were worsening and highlighted a week ahead of upcoming CHF strength which indeed we saw. I hope some/many of you took heed. I was already short swissy pairs anyhow as regular readers will know but I wasn’t just talking my book. The swiss franc has long been the safe-haven of choice, along with gold, and indeed the two have long been tidy bedfellows as a neutral territory with numbered bank accounts/private vaults. Admittedly gold is not flying so far and the US $ too has had it’s fair share of the feel-good factor for investors but for various reasons now ( a different post but I will invite your suggestions!) it’s lost its mojo.
More recently the yen has been right up there as a safe-haven too, something which frankly I have always struggled to understand, given its domestic financial turmoil and ongoing/escalating spats with China. And now the kiwi is attracting some haven flows but that’s a dangerous game of dice given the thin liquidity of the pair, for both entry and exit.
So we’re back to the land of cuckoo clocks, drugs and chocolate and I see the strong CHF trend continuing all the time this, and other, global uncertainties continue. So what about the SNB I hear you cry?
Yep, could be a bit of a problem for Thomas Jordan & Co as no central bank can stem the tide of global flows. Sure it can easily spook a few short-medium term forex players but not the hard core of investors, including other governments, so it has to decide soon (and I’m sure the deliberations are currently going on) as to just where they might want to start “smoothing” things out to prevent a rapid drop to and through their cherished 1.2000 peg from Friday’s vulnerable looking close around below 1.2150
EURCHF weekly 2 March 2014
It’s a guessing game for us and the world’s markets, and one might argue that the SNB are cleverer than most when it comes to playing that game. Suppose that they don’t really have 1.2000 as such a holy grail of a number but have felt that a defence by rhetoric would be enough and save face at the same time. Or perhaps they recongnize they are powerless to prevent it from breaking in such extreme geo-political or financial extrems. They couldn’t surely have seen this particular crisis developing quite so badly as it has, so it could be a justifiable excuse for the peg to fall and let them come in at levels to prop it up again. Current SNB reserves stand at c. CHF 440 bln so they do have a fair amount to chuck at it but it’s a finite number nonetheless , albeit granted that the market will do its own bit by grabbing every offer in sight but only until its time to take some profit.
Ok, so in theory buying swiss francs down here at 1.2135 and 0.8790 really does run out of value for money for traders if the SNB are going to be true to their word and jump in at some point, but those already short of the pairs/long CHF generally should not be rushing to cover all of it back just yet. Either way I have long questioned the value/sense of keeping long positions in CHF pairs just because the SNB should come in to bail them out 300-400 points lower. Neither of the charts here take a rocket scientist to spot a down-trend in recent times but yes there have undoubtedly been good jobbing opportunties in the dips and we are now down there again!
USD CHF weekly 2 March 2014
So we can expect some fun and games in these pairs over the coming week remembering that they could step in at any time on either pair, and sadly I don’t have a crystal ball or a direct line to the SNB/Kremlin to help me, or you wonderful readers. But one thing I would advise is that this is not a time for burying your head in the sand and hoping.
Right, time for me to get out and enjoy the rest of my week-end!
