Today, the Swiss National Bank (SNB) announced it is taking additional measures to try to weaken its currency and wave off the franc’s many adoring fans. The SNB’s latest statement gets an “A” in rhetoric for amplifying its fighting words and claiming victory in one battle even as the bank warns it is prepared to escalate the war.
In “Swiss National Bank intensifies measures against strong Swiss franc” the SNB announced:
“The measures taken thus far by the Swiss National Bank (SNB) against the strength of the Swiss franc are having an impact. Nevertheless, the Swiss franc remains massively overvalued. The SNB has therefore decided to expand again significantly the supply of liquidity to the Swiss franc money market. In so doing, it is increasing the downward pressure on money market interest rates with a view to further weakening the Swiss franc exchange rate. With immediate effect, it aims to expand banks’ sight deposits at the SNB further, from CHF 120 billion to CHF 200 billion. In order to achieve this new target level as quickly as possible, it will continue to repurchase outstanding SNB Bills and to employ foreign exchange swaps. Furthermore, the SNB reiterates that it will, if necessary, take further measures against the strength of the Swiss franc.”
It is interesting to note that the Swiss GDP in 2009 and 2010 was around $500B U.S. or around CHF 393 at the current exchange rate. So, these sight deposits will now represent roughly 51% of Swiss GDP! This amount is impressive, but the SNB did not mention any plans for a currency peg. The rhetoric and rumor about a currency peg is what last week finally put an abrupt halt to the Swiss franc’s rapid appreciation. With an official news release lacking the feared event, the franc promptly strengthened all over again.
The charts below show the EUR/CHF and USD/CHF had just reached the downtrend line around the 50-day moving average (DMA) when this release hit. This event represents as good a time as any to close out my net short position against the franc and even test out hopping back on the trend for a short spell.
Source: dailyfx.com charts
Source: dailyfx.com charts
The Swiss franc will certainly garner even more attention from traders who want to capture some volatile moves. Small positions make sense along with a healthy dose of vigilance.
Be careful out there!
Full disclosure: net long Swiss franc