As the aftermath/debates/discussions and fall-out continues I’ve been trying to work out just what was going through the mind of SNB chairman Thomas Jordan when he and his colleagues decided to pull the plug on EURCHF yesterday
Did he fully realise what they were about to unleash and the wide-reaching carnage that he would create ?
A few areas/issues immediately spring to mind to throw out there at you and indeed him. Yes Mr Jordan, do feel free to get in touch and let us know if you forgot to consider the full impact on, to name just a few
- forex markets/brokers/traders
- CHF mortgage holders all around the globe
- Swiss exporters
- stock markets
- SNB fx reserve values ( losses of CHF 81 bln at 15% depreciation on reserves of CHF 540bln having just reported 2014 provisional profits of CHF 38bln)
- SNB share holders (see above)
- AN Others
If Jordan did consider all of these ( and one imagines the SNB reserves/blance sheet issues must have been thought through surely) then does it all really justify the complete removal of support ? And did he overestimate the impact that the increased negative depo rates would have ?
As recently as Jan 5 he was defending his support of the cap although admittedly he couldn’t exactly say anything else if he had this up his sleeve in order to keep the element of surprise. Obviously the failure to sustain any rally after the neg rate move on Dec 18 and the need to keep a hefty bid on EBS finally made his mind up that he was peeing in the wind
Were other central banks aware of his plans ? We have assumed so but IMF head Lagarde says she wasn’t informed prior
I’ve been cynical about the continued buying of EURCHF and the reliance on the SNB for protection for a long time now, as regular readers will testify, and in my ForexLive 2014 review said the jury was still out on Mr J, but I really didn’t see this complete carnage coming in such a way. Our friend and informed SNB commentator George Dorgan has questioned the cap/intervention for some time now but had a target of 1.1000 in mind
Reckless or calculated behaviour from the SNB on behalf of them and Switzerland ? And what does it tell us about the months ahead ? Seems to me that this is the start of major changes/announcements starting with the ECB next Thursday.
The outlook is not good and inadvertently or otherwise Thomas Jordan has changed the landscape, at least in forex, for a long time if not forever.
Maybe for the better. Maybe for worse. Only time will tell, so let’s be careful out there
SNB’s Jordan – many questions to answer as the fall-out continues
