The volatility of recent sessions has left no stone unturned across asset classes. Currencies have seen a notable resurgence in volatility as evidenced by the renewed haven flows and margin call unwinds being experienced. While the Swiss Franc still remains a major haven play for risk-averse traders, the Swiss National Bank is doing everything it can to discredit its haven status. Negative interest rate policies might be effective in preventing hot money inflows on a longer-term basis, however it has not proven successful in eliminating short-term speculative cash from rushing into the Franc. Today marked another substantial intervention by the Swiss National Bank as they took another stab at weakening the Franc and traumatizing traders seeking a safe port in the current storm. At approximately 11:30 GMT, the EURCHF saw a solid bid come in that was not indicative of a retail driven rally, but rather a preplanned intervention by the Central Bank to scare of speculators.
Today’s effort caps off a string of failed attempts at weakening the Franc to protect the domestic economy from the impact of European contagion. Most cases of intervention have seen the losses mount for the SNB balance sheet while hardly making a dent in demand for Francs. The half-life of most policy decisions made by the Central Bank is a matter of hours, not days or weeks. Last week’s intervention saw the move retraced almost in entirety within a very short period of time. In spite of testing the lower bound of negative interest rate policies, speculators have been cheerily adding to their Franc exposure, betting that the currency will only appreciate as the tailspin in financial markets worsens. The Bank is likely to keep racking up losses, especially as Euro denominated assets drop in value and the ability to diversify these Euros becomes increasingly challenging considering the yield situation in financial markets. Watch for further downside in EURCHF as it will likely be accompanied by sharp moves higher, indicative of more direct intervention.
SNB Storms Back
Market Trends - 08/07/2015