I see in my absence that my retirement trade is getting a few other’s bums squeaking, so is it time to panic?

The boys have been all over the swissy last week, Eamonn had a post on guaranteed stops, while Adam is coiled like a spring to load up.

It’s old news that I’ve been buying this all the way down and there’s one reason I’m not panicking, I was prepared to lose on the trade from the outset.

Why is this trade different to any other? It’s not and anyone who has been trading it should have done so with the same money management that should be applied to all trades.

But ok, the trade is a little different as it’s not often you have a central bank potentially watching your back. Again though, it’s just an added reason to balance out what could go wrong with the trade.

The peg can be breached, even with the SNB on the bid in unlimited amounts, as it was back in April 2012.

Back then there were banks that didn’t have a line with the SNB and so in the way the fx market isn’t traded centrally there were trades that happened below the peg by individual parties that weren’t part of the SNB’s club. Here’s the statement from Thomas Jordan after that event.

After that the SNB went out and firmed up credit lines and made sure that as many little weak points were covered. While this still may leave minor chinks in the armour it should mean that most of the trading platforms should hold up to the prices.

Can we expect a Soros type event? The difference here is that the SNB is selling their currency whereas the BOE were buying their own pounds. It doesn’t rule out someone taking on the SNB but it will be a battle of who has the most money. Seeing the SNB can print theirs to their hearts content the odds are stacked in their favour.

So what do we do if the peg gets flushed by shear overriding numbers? Do we panic and short it or do we just see the stops flushed before the SNB gain control of the situation to drive it back to 1.20? Liquidity will be a big key in any attack on the peg. It’s not a big market so to weigh up the amounts needed to bust the SNB against what they will need to cover any shorts with may make it a non event.

The play by any attacker will be to be on the bid in huge size around 1.18 or maybe 1.19 to soak up the expected stop rout through 1.1950, as they won’t wait for the stops to be flushed before covering the shorts as the liquidity won’t be there.

In my mind the play will be to buy into any break of the peg, unless the SNB give it up. Even if a seller overwhelms the SNB initially they will cover and let the SNB run it back up. I’ve moved all my stops down away from the 1.19 level and may push them right down so I’m not caught in any volatile situations. I have got a quite substantial position in the pair so seeing out a break of the peg could test my mettle more so than other trades. I see this as a very big opportunity though and one I’m happy to invest in in bigger amounts.

So, it’s over to you Mr Jordan and whether you’ll be on my Christmas card list this year

;-)
Will the SNB be able to defend the peg successfully?

Yes

The peg will be fondue