The Swiss National Bank has vowed to step into the markets when the EURCHF drops to 1.2000. This level has held firm and the EURCHF has traded around this level. Is the SNB pledge enough to scare sellers away at 1.2000 or will we see a sustained breakdown below it in 2015?
In 2012 SNB spent up big to save the Franc from dropping below 1.2
Their pledge may not be enough to scare sellers, but I believe that if it’s not they’ll step in to defend it again.
They won the Swiss Gold Referendum, so they have the funds available should it come to that.
That being said, I am in no way an expert in Macro Economics so I could be completely wrong
I think the SNB will step in to defend it, but the real test would be if the EURCHF will dip below 1.2000 and remain there. For now it seems that traders do not want to challenge the SNB.
The fact that most market participants think this is something like a risk-free trade compels me to want to short it just for spite. I’m staying away from this pair though.
I see two outcomes:
- Hover around 1.2 for weeks / months.
- 1.2 folds, retailers hold onto their positions for hundreds of negative pips, get short @ the bottom, and then price rallies back up to 1.2.
Personally, I’ll only have interest in this pair if the floor breaks. Even then, it may be too volatile to really put money on the line.
The SNB will be cutting their interest rate to be below zero this month. This will make it more costly to hold The franc which will deter those trying to break the floor. The bank has already intervened recently and will continue doing so for the foreseeable future. Momentary spikes to 1.1990 May occur but there is no way the SNB allows its credibility to be questioned and will intervene as necessary. This particular scenario is easier for a central bank to control then the scenario the Bank of England found itself in 1992 when it was trying to STRENGTHEN its currency. The SNB can print money all day long to de-value its currency if it came down to it. Longing the pair here at 1.2010 is truly the closest thing to a risk free trade you will ever find in this market. The only cost is the opportunity cost of being married to a low volatility pair for a long period of time, time which your margin may have earned more with other pairs.