EUR/CHF, A History of Interventions: May 2012

Notices Europeans have been buying Swiss francs and dollars.

Who knew?

As Gerry mentioned earlier, the talk of a rescue fund for EZ banks seems to have set off some short covering acros the board. AUD/USD is trading at .9815, after closing on Friday at .9760, and the NZD/USD is trading near .7600. USD/JPY is 79.70, cable is 1.5690 and EUR/CHF is at 1.2020.

Good luck today.

‘Switzerland is drawing up plans for emergency measures including capital controls in case the euro collapses”

Strange days in EUR/CHF with rumor central yesterday and then some large purchases from a UK clearer overnight. Pulses are thumping a bit faster with the pair down to a low of 1.2006.

I find it hard to believe that someone with an inside tip about SNB action on the weekend would be so foolhardy as to buy billions of dollars at once, moving the market when patient buys would get better fills.

The chart shows downward momentum but it puts the market back where it was early on Thursday so nothing has really changed.

If you think there is a spec of truth in the rumors, it’s better to be long.But here is why I wouldn’t be: if the SNB did have plans for weekend action, they would be shelving them right now because of the the perception they were leaked. After the Mrs. Hildebrand fiasco, they can’t have any more questions.

Shorts still don’t make sense to me in the near term. The peg is hugely popular in Switzerland and they don’t seem to care about the cost. In the longer-term shorts may start to make sense in a euro-breakup panic… but there will be lots of way to make money with that scenario.

The spike in EUR/CHF, the earthquake in New Zealand, equity markets back in the red and Sovereign names buying the USD; all of these factors add up to increased nervousness and risk aversion in the FX market.

Next big level to watch will be 1.2500 in the EUR/USD, where barriers are reported.

I’d ignore all Friday afternoon rumours which usually tend to be utter rubbish.

Facts are that a UK clearer along with some of the bigger hedge funds have bought a chunk in the last hour of trade. They might be exiting remaining shorts, after the stop-loss run last night or they might know something we don’t! What I will say is that its unusual for big players to trade EUR/CHF in this timezone as the liquidity is quite poor compared with European trade.

I’m trying to verify what’s causing the move in EUR/CHF with a vague rumour during the rounds that SNB to make an announcement over the weekend. The cross is up at 1.2035 from its usual 1.2010 level.

EUR/CHF gapped sharply higher overnight from 1.2010 to 1.2075, triggering large hedge fund stops above 1.2025 and again above 1.2050. There were 3 possible explanations:

• ‘Fresh’ news that the SNB was preparing to tax CHF deposits; but fresh news turned out to be only a regurgitation of old news
• Active SNB intervention; also complete rubbish. As we reported earlier in the week, a Dutch Prime Broker is bidding at 1.2010 during European and NY trade on behalf of the SNB and the SNB itself is sitting at 1.2000.
• ‘Fat fingers’; also no evidence whatsoever that some fat finger managed to buy EUR5 billion to move the pair!!

My advice has remained the same for the last 6 months, avoid this pair and look elsewhere for opportunities.

Back down to 1.2012/13…

There have been all manner of rumors today about the EUR/CHF, the most plausible about the Swiss potential instituting a tax om CHF deposits.

In the aftermath of the rumor, several hedge funds who were short in the neighborhood of 6 bln EUR/CHF with very tight stoplosses around 1.2025 were slaughtered in the process, traders say.

All roads lead to Athens. apparently.

UPDATE: Turns out that piece is from last fall. Could be the deal is just being implemented.

Sorry for the confusion…Lots of stuff flying around today…

They only Swiss think tank I can think of is KOF, for what its worth.

So, just an idea being floated by the academics at this stage, it would appear.

EUR/CHF steady in the 1.2037 area as market makers caught short on the spike try and get back to flat…

Down to the mid-1.2030s as there has been no confirmation of the rumored Swiss tax on franc-denominated deposits.

Whether or not a tax comes to fruition, hats off to whoever dreamed up the rumor. It is so plausible that if you’re short EUR/CHF, you can’t just blow it off.

One can understand why Switzerland would be reluctant to put such a tax in place. It would be a form of capital controls, like those seen in emerging markets. As a country with a very large financial services industry, the last thing it wants to do is employ a “third-world” strategy to protect itself in the short-run  only to endanger its reputation as a free-market haven.

But as a small economy overwhelmed by events beyond its control, it may have to take drastic steps to protect the domestic economy. If they do impose a tax, we can assume that the SNB has amassed a huge amount of EUR/CHF in keeping the 1.20 floor intact and is growing uncomfortable with the risks.

If no measures are taken and hot-money players now long, risk is the SNB will soon be buying billions more euros if nothing transpires on the tax front. Traders estimate EUR 4.5 bln went through in EUR/CHF since the spike.

EUR/USD dragged up by EUR/CHF…

EUR/USD ran up to 1.2621 before stabilizing, retesting the break-out to the downside seen just yesterday and strengthening that level as resistance.

The rumor that the Swiss government may impose a tax on Swiss franc-denominated deposits has gotten the EUR/CHF cross off the floor at last. Now they need to follow through or risk the SNB being bull-dozed by the hot-money crowd which bought the cross on the back of the rumor…

Ramps to 1.2048 from 1.2010 area.

Not likely intervention as SNB has been the bid for weeks…not sure why they would suddenly start paying offers…

Ya have to wonder if it is the mother of all fat-fingers…

• EUR shorts, when considering both CFTC and prime broker reports, are at record levels
• GBP longs are at the highest levels in almost 5 years
• The AUD market has swung from long to small short
• Interestingly, the CHF market is back to square

There will have been some positional adjustment on Friday which will have reduced these positioning levels.

If you like contrarian plays, then sell GBP/AUD rallies and get long EUR/CHF!

Traders say the massive bid in EUR/CHF is from a prime broker, NOT the SNB directly.

Perhaps the SNB is trying to cover their tracks by washing the trade through another entity. I guess the thinking is that by using a third party, the market will conclude that there is a “natural” buyer of EUR/CHF (in unlimited amounts) rather than an official buyer protecting an artificial line in the sand. It is a patently silly strategy which only drives up the SNB’s transaction costs as they have to pay fees to the prime broker.

EUR/CHF is comatose in a 1.2010/1.20127 range.

He spoke in a speech today:

 “The minimum exchange rate was really the only effective option we had at that time available to combat the acute threat to the Swiss economy and also to combat the deflationary risk we faced at the time because of the massive overvaluation,”  Jordan said.

A bit odd that he’s speaking in the past tense.

Down from +2.1 in April, but not quite as bad as median forecast of -8.0.

EUR/CHF remains steady at 1.2010.

It’s not easy to find anything bullish to say about the EUR, with only SNB-backed EUR/CHF support managing to hold. EUR/USD, EUR/JPY and EUR/GBP all look very soft indeed and I see no point in fighting these trends.

EUR/JPY will be the dominant pair during Asian trend and the close below 102.50, where all the stops were gathered yesterday, should ensure continued bearish sentiment. Next support band is looming in the form of a previous pivot area between 101.80/102.20.

All of this cross pressure will keep EUR/USD heavy, and with little sign of any technical support, bulls might be in for some more pain.

• Ready to defend peg with utmost determination
• Further franc gain would threaten price stability
• Ready to take further measures if needed

Nothing will happen in EUR/CHF until we’re all bored to tears. We’re not there yet but I’d say we’re a month or two away.

1. Turmoil
2. Crisis
3. Panic

Those are the three stages of a financial calamity like the one  in Europe. For a time after the LTROs it looked like the crisis was easing back into turmoil but that’s no longer the case.

Instead, the crisis is arguably at its worst point. For now, the markets are orderly but the longer Europe remains in crisis mode with no sign of official action, the higher the probability of a disorderly rush to safety.

The low print on EUR/CHF today on EBS was 1.2009 but some broker screens have printed lower. The Swiss National Bank better ready its firepower because the battle is coming.

EUR/CHF trades below 1.2010 this morning, no doubt being closely managed by the SNB. They must be taking on huge sums at these levels as Investors from the periphery of Europe look for safe-harbors. If the Swiss are willing to give them a safe harbor, Greeks, Spaniards and Italians worried about their savings are willing to make use of it.

The Swiss can keep the printing presses running as long as they like and buy euros with the proceeds. The question is, how much FX risk are they willing to endure? We may find out in the days ahead.

Morning all, and thank you Gerry for keeping us up to date on the very early happenings.

EUR/USD has traded to a low of 1.2901 so far in early interbank trade, with barrier protection ahead of 1.2900 still in play. No sign of any bounces yet and the pair is currently trading at 1.2905.

AUD/USD is at 1.0040, USD/JPY at 80.00, cable at 1.6070 and EUR/CHF is at 1.2010.

The IMF has said that the SNBs cap on the CHF is appropriate given Switzerland’s slow growth and deflation risks, but they should return to a floating rate once conditions stabilise.

(Reuters newswires)

The Problems With A Range-Bound Market