Switzerland Intervenes in Currency Markets Again

By Sean Hyman

Oh the Swiss Central Bank (Swiss National Bank - SNB) is at it again! They are intervening in the currency market by selling their currency (furiously, I might add)!

Early this morning, the Swiss intervened in the EUR/CHF pair, driving it up about 280 pips so far. That’s a huge move for this currency pair.

Back on March 12^th, the SNB warned that they would intervene and that “policy makers will act to curb any irrational appreciation” (in the Swiss franc).

Take a look at the chart below and you will see what I mean.

800 Pips of Pain to the Short Sellers! (Click to enlarge)

While the intervention was huge, the EUR/CHF pair remained in its larger downtrend. Well, today they are at it again...and they may push this pair past its downtrend line.

Why are they so focused on the EUR/CHF pair? That’s where most of their exports do to (the rest of Europe). They need a high euro to franc exchange rate to help their exporters, so that the Swiss exports are “cheap” from the European’s standpoint.

Last year, the Swiss exports slumped by a whopping 17% and this year they may slump another 2.6% this year (the government estimates). This is huge because exports make up more than ½ of their economy!

During the credit crisis, money ran to the dollar, yen and Swiss franc as a “safety zone”. The Swiss have some of the lowest unemployment in the world, they’re almost never in a war, and they typically carry a huge trade surplus which makes them less reliant upon borrowing from overseas.

However, the Swiss have gotten very concerned over this rapid appreciation of their currency. It’s not only hurt their exports but has caused their economy, as measured by the GDP, to shrink . In fact, their government estimates that it could shrink as much as 2.5% to 3% this year! So you can see why they are hard pressed to do something drastic.

After all, this isn’t the normal protocol for the SNB. In fact, they haven’t intervened in their currency since 1992! So you can see that this is somewhat rare for them.

They really hope to make the EUR/CHF “line in the sand” to be around 1.50 and I’m sure they hope to additionally technically turn around that downtrend by breaking the red downtrend line on the chart. If so, they know that it will cause a lot of hedge funds that are “trend followers” to reverse their positions and it would help their cause.

The Line in the Sand! (Click to enlarge)

By the way, if you want to get an “up close” look at what today’s intervention looks like...just check out the 5 minute chart below. They pushed this pair up about 260 pips in about 1 hour! To give you an idea of how unusual that is...the pair normally trades about 80 pips a day on average!

The Swiss punish those who are short EUR/CHF! (Click to enlarge)

Original article

Comments

[El Gekko:]

Not to mention loans in CHF that use to be very popular to Eurozone eastern Europe. Keeping CHF low helps borrowers pay their loans and Swiss banks to remain solvent.

Jun 25 09:32 AM

[Ferdinand E...:]

It's terrible what the Swiss are doing, isn't it. And how unsociable that country is: the don't belong to the European Union, or maybe even the UN. They stay away from wars like the one in Iraq and Afghanistan, even though almost every Swiss of military age has an automatic rifle in his bedroom. To make foreigners jealous they have gone out of their way to make Zurich and Geneve two of the most marvelous cities in the world, and they have some great skiing in the winter. But let me tell you the worst thing about that country. I lived in Geneva for 3 years and I never heard anybody raise his or her voice to anyone else, nor did I see any fights or 'incidents'. Just who do they think they are anyway?

Jun 25 10:32 AM

[TinyTim:]

what's worse, they have four different national languages. Press 1 for Italian, 2 for French,...

Jun 25 01:32 PM