Eploiting the EUR/CHF 1.2 minimum exchange rate

[AFK]

Has anyone thought about the implications of the the SNB limiting the EUR/CHF exchange rate to no less than 1.2? Are volume and volatility going to dry up completely in this pair, or is it going to flirt with the 1.2 level with the occasional move up (but never below). Finally, are sharp spikes below 1.2 to be expected?

I'm trying to figure out if it will be possible to do some very low risk scalping by buying it every time it touches, say, 1.2005 with a stop at 1.195 and a tp at 1.2015-25... Any thoughts??

 

[scose-no-doubt]

F*ck the rate the bond market must be up the wall!

 

[Martinghoul]

Good luck...

 

[Black Swan]

Has anyone thought about the implications of the the SNB limiting the EUR/CHF exchange rate to no less than 1.2? Are volume and volatility going to dry up completely in this pair, or is it going to flirt with the 1.2 level with the occasional move up (but never below). Finally, are sharp spikes below 1.2 to be expected?

I'm trying to figure out if it will be possible to do some very low risk scalping by buying it every time it touches, say, 1.2005 with a stop at 1.195 and a tp at 1.2015-25... Any thoughts??

I reckon the SNB are full of 5hit...

 

[AFK]

I reckon the SNB are full of 5hit...

There might be a new Soros somewhere out there willing to short more euros, than the SNB is willing to buy... Anyway, I guess there is no point in speculating what will happen. If E/C drops to 1.2005 I'll buy it with a 20 point stop and see what happens. My money is on the SNB defending their minimum exchange rate violently a few times at least. The market might eventually deplete their resolve to maintain that rate along with their currency reserves, but I don't think it will happen too soon.

 

[Martinghoul]

How can you deplete your ccy reserves when you're weakening your domestic ccy by selling it?

 

[scose-no-doubt]

MG is there any way that other CBs help out the SNB?

 

[AFK]

How can you deplete your ccy reserves when you're weakening your domestic ccy by selling it?

I wasn't talking about foreign reserves, I presumed that SNB holds a certain amount of franks in reserve and that this reserve will be first in line to be dumped into the market. After that they have the printing press to print more, but who knows how much they will be willing to print...

 

[AFK]

MG is there any way that other CBs help out the SNB?

Interesting question - in the days when all governments are trying to weaken their domestic currencies, it would seem counter productive to help another country do that, besides I don't think that helping other countries weaken their currency is in any central bank's mandate.

 

[Martinghoul]

I wasn't talking about foreign reserves, I presumed that SNB holds a certain amount of franks in reserve and that this reserve will be first in line to be dumped into the market. After that they have the printing press to print more, but who knows how much they will be willing to print...

Nah, the SNB creates CHF out of thin air, so there are no reserves to speak of. And they should be willing to create as much CHF as the mkt wants. The issue is not particularly about how much CHF they can sell, but rather about how much other junk they can buy with that money.

 

[Martinghoul]

MG is there any way that other CBs help out the SNB?

Well, the one way other CBs can help out the SNB is by sorting out the Eurozone mess once and for all. And, obiously, the Fed has to refrain from any more misguided attempts at stimulus through QE.

 

[YouAreNotFree]

The global currency war is becoming very interesting indeed. They are crazy for doing this ( if committed to a serious attempt) and I am surprised they 'only' want a 1.2 target.

 

[scose-no-doubt]

Well, the one way other CBs can help out the SNB is by sorting out the Eurozone mess once and for all. And, obiously, the Fed has to refrain from any more misguided attempts at stimulus through QE.

So SNB are accepting any euro break up risk that the market can throw at them?

 

[Martinghoul]

So SNB are accepting any euro break up risk that the market can throw at them?

Well, it's implicit, in a way. They don't own any peripheral debt, so it's not like they're likely to lose the principal. However, they do accept whatever mark-to-mkt noise might arise, but they're a central bank and that's the sort of thing they do.

 

[scose-no-doubt]

I'm just having trouble understanding how they aren't propping up the euro in a number of ways rather than maintaining chf at "true" value.

 

[Martinghoul]

I'm just having trouble understanding how they aren't propping up the euro in a number of ways rather than maintaining chf at "true" value.

Well, they're propping up the Euro, in a way, for sure... But, if you don't mark-to-market, you can do that without risking your principal.

 

[scose-no-doubt]

What just there on the BS as intended to be HTM? At par/paid?

 

[Martinghoul]

What just there on the BS as intended to be HTM? At par/paid?

Yep... As long Germany/France doesn't default, you'll be fine.

 

[Black Swan]

Nah, the SNB creates CHF out of thin air, so there are no reserves to speak of. And they should be willing to create as much CHF as the mkt wants. The issue is not particularly about how much CHF they can sell, but rather about how much other junk they can buy with that money.

Brilliantly summed up...there'll be commentators writing 2000 word essays as we speak, you've nailed it in one paragraph..

 

[AFK]

I know f*ck all about the mechanics of the bond market, so don't take my opinion too seriously, but to me it seems that letting Greece and company leave the euro until they sort their spending problems out would be best for everyone involved - going back to printing their own currency and issuing debt in it would surely push the yields on their bonds to a more manageable level.

The US keeps (correctly) claiming that they cannot default as long as they can print the currency in which they owe debts and the same is true for Greeks and any other country that issues bonds denominated in the currency that they control. As for the argument that printing money to pay off debts would lead to inflation - sure it would, but since the bond holders would be the first in line to spend that freshly created money they would get to spend it before it lost purchasing power... And once default becomes less likely the yields go down, no?

Now, please enlighten me as to why I'm wrong