So EURCHF has been as low as 1.0257 and as high as 1.0921 today (A range of 6.5%) and we currently sit near those highs. Lets not forget that up until today the CHF had appreciated 22% vs the USD since the beginning of the year (the most of any G10 currency) and 35% since 1st Jan 2010.
We know from yesterday that the SNB have been intervening in the FWD market (the fwd pts have moved so that it is now more expensive to hold long CHF positions) as they are worried about excess CHF strength and the market has become very jittery on any further action, hence the movements today in this notoriously illiquid pair.
Recent events and developments are perhaps best summed up by G10 FX Strategist Bob Lynch in todays HSBC FX edge…
– The CHF has weakened more consistently in the wake of the SNB’s additional monetary easing Wednesday, the threat of more actions by SNB today (voiced by SNB Vice Chairman Jordan), and newfound speculation that Swiss authorities could temporarily peg the CHF to the EUR in an effort to stop its appreciation. The idea of a EUR/CHF peg makes for great headlines, but is less practical from a policy perspective. In short, it would require the SNB to absorb the EUR selling interest, and take the EUR risk onto their books, in essentially the same way they did during the unsuccessful FX intervention of 2009-2010, only now they would be forced to further increase their FX reserves with EUR’s that are even less attractive now then they were previously. There are few desirable policy options left for the Swiss at present, but a type of peg to the EUR would seem to be among the worst of a limited and bad lot.
A separate, seemingly more plausible action (at least in the current, overly stressed and limited-option environment) being discussed in the market is the imposition of a tax of on foreign deposits in Switzerland, a move that might not only discourage additional inflows, but could even encourage some outflows. These types of macro prudential measures have been more common among emerging market economies in recent years, but in an environment where monetary policy is nearly tapped out and FX intervention has been ineffective, it is something the markets view as somewhat more plausible, and is contributing to the current pullback in the CHF.
FINAL remarks –
We have seen a lot of accounts stop out of short EURCHF and USDCHF positions today but HSBC strategies view is that the CHF will continue to remain a safe haven and a place where funds will continue to flow – that said it would take a brave person to get involved with shorting here.
HSBC Global Research