There was an interesting report from Switzerland Friday morning. They reported their foreign currency reserves had grown to 303.8B up from 237.6 the prior month. As we know the Swiss National Bank has pegged the value of the franc with the euro at 1.20. When there is pressure on the Euro, the SNB has to buy the Euro and sell the SF to keep the peg. The report shows they have been accumulating ample supplies of foreign currencies, probably defending the peg.
What they do with the Euros once they buy them we do not know. There have been rumours they have been buying Swedish and Danish currencies, as well as German bunds.
Will the day come when the SNB is no longer able to defend the peg? How many euros will they be required to buy until they throw in the towel?
The SNB does not seem concerned with the USDCHF spread but which has widened from about 71 to 97 in the past year. Maybe, in fact, the USD market might be too big for the SNB to defend. If some big players decide at the right spread they wish to own the SF rather than the USD, what will the SNB do with this one? Or what happens if there are defections from the euro group. Sure, Greece would be painful, but what if Germany left? Would that take the Euro under 100?
Some day a long Swissie going to make a lot of money. Timing is everything.
[I]I have no positions in any stocks or currencies mentioned, and no plans to initiate any positions within the next 72 hours.[/I]