Already? 1.2050 ? or even closer to 1.2000?

Regular readers will know that I have long been a buyer of CHF in USDCHF and EURCHF rallies,well before the recent slide in both pairs, not for the least reason being the growing geo-political tensions over that period and the swiss franc’s traditional safe-haven status.And I’ve long questioned the logic of buying EURCHF at higher levels just because there’s a supposed floor 200, 300, or 400 points below, although I accept there has been money to made in that trde from time to time too

So with EURCHF dipping below 1.2100 ( sticking its shaky head back above that level this morning) the question we must ask is when will the SNB feel it’s necessary to intervene. Do they wait until the peg is nearly reached or step in to prevent it getting too close? And if so where does that level kick in ?

The break of 1.2100 takes us below there for the first time since Jan 2013 but I believe it will take a further fall toward 1.2050 before they get too concerned although you can bet your last franc that they will be watching closely and keeping their fingers crossed that the geo-political events abate.

USDCHF weekly 18 Aug

USDCHF weekly 18 Aug

We know they have said they will throw unlimited amounts at defending 1.2000 but experience tells us that central banks on their own can not fight market forces so they are in for a real battle should they have to come in. Reserves have a finite value and they have already admitted it’s their only tool left in the box. Ok, so around CHF 440 bln is a decent amount but is it enough should world events and markets accelerate the CHF demand ?

To buy themselves more time they may well start some “smoothing operations” in order to create some panic selling of the franc but they know that as soon as they start playing their cards this hand of poker could be a very expensive one. They haven’t officially intervened since Sept 2012 and will not be in a rush to start too early.

And then we have to ask how they will intervene should the need arise ? Straight buying of EURCHF ? USDCHF? EURUSD? The answer is probably a combination of all three if previous experience is anything to go by but the effect will be the same regardless. Could they raise the cap and get out of jail that way ? Possibly but unlikely.

Either way, we may well know soon enough if it all kicks off but for now the guessing game continues. I’ll still be selling the rallies though on both pairs until proven otherwise, albeit with a little more caution at these lower levels.

I’d be very interested to hear from both our interbank and retail readers on this one. What do you all think?