Choppy markets and fears of a Greek exit ahead of tomorrow’s potential default sent the Euro plunging overnight versus peers with the main benefactors including the US Dollar and Swiss Franc. While the Federal Reserve has been particularly quiet on the Greek matters, refraining from commenting up until this point, the Swiss are unwilling to simply stand back and let the economy be flooded with inflows of hot money seeking to escape the doldrums of Europe. Although not necessarily an officially designated policy, the Swiss National Bank has been targeting a EURCHF exchange rate soft-peg of between 1.0500-1.1000 to help keep the economy competitive following the drop of the hard peg at 1.2000. Today’s direct intervention in foreign exchange markets to support the soft peg was evident as right around 07: 00 GMT the Central Bank acted to weaken the Franc by buying Euros. The result was an uptick of over 100 pips before the pair retreated once more, with the half-life of the move clocking under 2-hours.
Considering the bid that came in from the Central Bank the strategy itself was executed sloppily. While it accomplished its goal of providing a warning to potential speculators by inducing a panic buying bid in the EURCHF pair, the Swiss National Bank does not boast a big enough balance sheet to actually fight a true speculative bid for the currency. Despite negative interest rates and other policies aimed at deterring money chasing after safe-havens, the Franc remains well bid in times of safety, something for which the Swiss have only themselves to blame. This will not be the last time the Central Bank is forced to intervene as the situation in Europe continues to unravel amid both sides crying foul versus the other. The madness encircling Europe will get worse before it improves, and the Swiss National Bank does not have enough ammunition to completely fight off speculative inflows. As such, expect short bursts of interventions from the Central Bank buying Euros and selling Francs to ward off a significant appreciation in the Franc.
Market Trends - 29/06/2015