Eploiting the EUR/CHF 1.2 minimum exchange rate

[new_trader]

The academic article doesn't back anything up. It makes an argument, like all academic papers do. There are many other papers that make the opposing argument. This is pretty basic.

You have used the phrase "track record", which implies that you have knowledge of specific cases. That is what I would like you to provide. If you can't provide that and instead are offering academic theory, your assertion, as you have stated it, is false. So let me ask you yet again, can you offer any specific instances of "central banks not getting it right"?

I said before and I will say it again. History is there for you to research and form your own conclusions, if you don't like the academic paper, write your own. I'm puzzled as to what led you to write this:

"On the other hand, there are tangible signs that the current valuation of CHF is causing the Swiss economy to lose industrial capacity and become over-financialized. The Swiss have seen this happen in countries like the US and they perceive this as a much more dangerous "slippery slope". So, for the moment, they unanimously choose the lesser evil. "

Correct me if I'm wrong, but doesn't the US have a Central Bank?

 

[Martinghoul]

I said before and I will say it again. History is there for you to research and form your own conclusions, if you don't like the academic paper, write your own. I'm puzzled as to what led you to write this:

"On the other hand, there are tangible signs that the current valuation of CHF is causing the Swiss economy to lose industrial capacity and become over-financialized. The Swiss have seen this happen in countries like the US and they perceive this as a much more dangerous "slippery slope". So, for the moment, they unanimously choose the lesser evil. "

Correct me if I'm wrong, but doesn't the US have a Central Bank?

Right, I see... So you'll be making the assertions and I will be doing the research to provide proof? That's not a division of labor that I particularly fancy.

And yes, the US does have a Central Bank, but I fail to see what it has to do with our discussion.

 

[new_trader]

Right, I see... So you'll be making the assertions and I will be doing the research to provide proof? That's not a division of labor that I particularly fancy.

No, you don't have to provide anything. I did my research and came to a conclusion that you don't agree with. Besides, it's only fair since you completely ignored my request for proof of one of your assertions sometime ago.

And yes, the US does have a Central Bank, but I fail to see what it has to do with our discussion.

The US, as you stated, has lost industrial capacity and has become over-financialized. How long did this process take? How is it that the Swiss perceive this a dangerous slippery slope and the US didn't?

Would I be correct in restating what you wrote in this way: "The Swiss are currently using monetary policy to avoid losing industrial capacity and becoming over-financialized like the US."

Would the Swiss describe this as a mistake by the US?

 

[Martinghoul]

No, you don't have to provide anything. I did my research and came to a conclusion that you don't agree with. Besides, it's only fair since you completely ignored my request for proof of one of your assertions sometime ago.

I must have missed it inadvertently. I apologize and I am happy to respond to any and all requests of yours.

The US, as you stated, has lost industrial capacity and has become over-financialized. How long did this process take? How is it that the Swiss perceive this a dangerous slippery slope and the US didn't?

Would I be correct in restating what you wrote in this way: "The Swiss are currently using monetary policy to avoid losing industrial capacity and becoming over-financialized like the US."

Would the Swiss describe this as a mistake by the US?

Arnd a couple of decades is how long it took. There's a few reasons that the Swiss perceive that it's a dangerous process. Not least of those is that they have observed the other Western economies and have the precedent handy.

You would be correct in restating what I have written, yes.

I imagine that the Swiss might use the term "mistake". However, it's important to understand that the process by which the US lost its "mojo" was a complicated political one. In politics it's very hard to define "right" and "wrong".

 

[NVP]

hey all

my take on the peg from a trading perspective has been pretty simple.....I stopped trading the pair

sure I now have the comfort that whatever the Euro does I can rely on the CHF to back it up (?) but aside from that I was never a big fan of trading the pair anyway

heres my FXCorrelator strengthmeter on a 200ma setting over last year or so ...

Blue Euro
Grey CHF
Lime USD for the Benchmark currency

That Sep announcement really started to bring them "tight" and eventually stopped the speculation once traders realized it was gonna be for for real during that Q4 glide path honeymoon period down to 1.20 ...

we can see since then in 2012 they are bosom buddies and perhaps note the Euro being more volatile (as expected) and the CHF played catch up to re-align the peg

shame as we've lost the need for any CHF pair trading currently.....as whats the point ? :smart:

N

 

[marbig]

You are indeed correct, Arbu.

When (and not if) the SNB terminates its policy of trying to hold back the tide, the market will gap down hundreds of pips. So there would be no point in having your sell order at 1.199 (or anything even remotely close to that number).

Have a look at the current trading of the EUR/CHF. In my opinion, I believe that the risk reward ratio is very strongly biased towards the collapse of the (artificial) Swiss National Bank price level of 1.2000.

The fundamentals of the Euro are getting much worse: May 6 is a day of reckoning for Europe’s leaders as France votes for a new president, Greece for a new parliament, and Italy goes to the polls for local elections. German state elections follow. On May 31, Ireland is holding a referendum on Europe’s fiscal pact. In June, France has parliamentary elections. Then the Netherlands will go to the polls. As these countries each move more to the left, the flood of money moving into the Swissie is becoming a torrential flood.

So we are looking at a trade that may happen as soon as next week or maybe as late as the end of May. I am prepared to hold a trade over that period of time for (what I believe is) a low risk /very high reward trade opportunity.

Mr Hollande has now been elected in France. The French bourse will take a big hit when it opens.

The Eur/Usd has gapped down and dropped 120 pips in the first hour of trading. (I am making big bucks on that pair).:clap:

Yet the Eur/Chf has not moved. I have doubled my trade again on selling the Eur/Chf.

Sold and hold for the Eur/Chf. Its a medium term winner trade. The SNB simply cannot hold against the raging torrent of money moving from the Eur to the Chf.

Edit Have closed all the Eur/Usd trades for nice profits. Will come back and hit that market again later.

 

[Arbu]

A lot of movement in a narrow range above 1.2 in the last hour. I assume it must be coming under some pressure in the run up to the SNB Chairman speaking later today.

Question: If and when the 1.2 level breaks what effect should that have on other euro currency pairs? The euro should strengthen shouldn't it, as the flows of euro into the CHF dry up and speculators close out their positions by buying back euros.

 

[marbig]

A lot of movement in a narrow range above 1.2 in the last hour. I assume it must be coming under some pressure in the run up to the SNB Chairman speaking later today.

Question: If and when the 1.2 level breaks what effect should that have on other euro currency pairs? The euro should strengthen shouldn't it, as the flows of euro into the CHF dry up and speculators close out their positions by buying back euros.

The Eur/Chf pair has been trading within a very tight 10 pip daily range since the beginning of April. (The selling pressure is intense which is keeping it from moving up. And the SNB has been buying at just above 1.2000 which is preventing it from moving down).
However, in the same time period, the Eur/Usd pair has dropped by around 500 pips.
So where do you think the Eur/Chf should be if it were not for the SNB ?

In answer to your question about the effect on other euro currency pairs, the euro will strengthen for a short period of time when the traders close out their positions.

 

[Arbu]

There were a few bursts around 14th - 17th May when the rate moved in a much wider range than normal for a few hours. Somebody must have been piling on the pressure I suppose.

EURCHF was about 1.1 before intervention. EURUSD was 1.42 at that time, now 1.26. So EURCHF should be perhaps 1.1*1.26/1.42 = 0.98.

 

[Arbu]

So we are looking at a trade that may happen as soon as next week or maybe as late as the end of May. I am prepared to hold a trade over that period of time for (what I believe is) a low risk /very high reward trade opportunity.

Hasn't happened. I think I'm going to close out my short position. Mainly because I don't really see what the SNB can say to back down without a massive loss of face. But also I think that if I was the SNB and wanted to deter speculators I would put in place a moving floor, maybe one that moved in jumps around 1.2 to 1.25. I think this would flush speculators out without necessarily costing the SNB anything. I don't want it flushing me out.

 

[TheBramble]

1.22 has been doing the rounds on the rumour mill (again) this morning.