The world of forex was turned upside down today when the Swiss National Bank announced it had abandoned the 1.20 floor it had set in EUR/CHF. The Swiss franc is now free to appreciate and it did in a heart-beat, rising 30% before most market participants even knew what happened.
Here are 7 storylines everyone is following:
1. The move came as a massive surprise. Just days ago, the SNB was calling it a cornerstone of their monetary policy. Here is a copy of the statement they released at 4:30 am ET (930 GMT). Reactions to the Swiss National Bank shocker have been all over the place.
2. Along with abandoning the floor, the SNB lowered the deposit rate by 50 basis points to -0.75% in an attempt to discourage franc appreciation. So far it hasn’t worked but EUR/CHF has bounced as high as 1.0610 from as low as 0.8500 but there is talk of SNB intervention already.
EURCHF one minute chart Jan 15
3. Who knew? SNB President Jordan said it was necessary to take the market by surprise but he also declined to comment on communication with other central banks. When the peg was first brought in, the wife of SNB President Hildebrand made some big FX trades before the announcement and it forced him to resign.
SNB President Jordan is not the most popular guy in forex today
4. Carnage in the FX market. Many traders were long EUR/CHF on the thinking that it was a one-way trade. It was a trade that worked for years and we sympathize with anyone on the wrong side of the trade. Mike noted “The best monies I ever made were the losses I never had” and that’s the refrain for those on the sidelines.
5. Broker blues. A big fight is brewing between brokers and clients. There are negative balances in many accounts and no one knows who will be picking up the tab. It’s mess and it’s a tough day to be in broker customer service. We note that for a time (some still) that all open trades being pulled from retail trading platforms. At least one broker already announced a potential £30m loss.
6. The fallout for the euro and ECB. The SNB hints at ECB sovereign QE a week from today and more euro depreciation. It says here that this is terrible news for the euro.
7. Spillover to other markets. Gold is a winner so far, up $32, as the the world looks for a safe haven. Bonds too with US 10s down to 1.78%. Stocks in Switzerland took a beating while the S&P 500 has had gains and losses but is now 0.4% lower. The dust certainly hasn’t settled but the safety of US dollars is suddenly comfortable.
