Today’s reserve data showed skyrocketing reserves at the Swiss National Bank as they defend the EUR/CHF floor.

Reserves were at 365B francs at the end of Q2 compared to 245B at the end of March, with all the growth coming in the final two months of the quarter as the crisis intensified.

The funds went disproportionately into euros, which now comprise 60% of reserves compared to 50% at the end of Q1. In order to bring the ratio down to 50%, the SNB would have to sell about 37 billion euros. Most of that would go into USD with the remainder into JPY, CAD and AUD (the SNB is seemingly shunning GBP).

The SNB might have begun selling euros at the beginning of the month as EUR/USD fell to the current level from 1.2650. If they haven’t, they are in a difficult position.

Dumping euros now would help knock EUR/USD below 1.2000 and to fresh record lows. That would add to the rout on EUR and (perversely) force them to buy more euros.

In short, the SNB is probably stuck with its euro holdings but may sell them into any euro strength, helping to limit gains.

If the SNB does start to sell, watch two-year German debt and US debt. The SNB is holding a large portion of its euro holdings in the schatz, which fell to a record low -0.09% today. If those yields move up and 2-year T-note yields move down while the euro is sliding, it’s likely the SNB at work.