EUR/CHF peg beeing attacked for the first time

swissaustrian · Apr 5, 2012

Some pretty interesting developments this morning:
As most of you probably know, the Swiss National Bank has pegged the Swiss Franc to the Euro. They have announced back in September 2011 (on the day gold made it's all time high in USD!) that they will defend 1.20 for EUR/CHF at all costs, meaning the will sell unlimited amounts of CHF. Today, for the first time since the announcement, somebody briefly drove the CHF below 1.20:

I had been trading in a range from 1.207-1.203 for weeks.

This means:
Either some speculators thought that the coming holidays would allow them to make money in the fx markets, because volume is exceptionally low OR there is huge panic behind the scenes as Spain becomes the next target in the Eurozone tragedy. I tend to think that the second scenario is unfolding. Why?
1. Gold and Silver are holding up remarkably well today, despite significant USD strength. Back in August/September when gold made all time highs in USD, the CHF was basicly trading in a 100% correlation to gold. The CHF wanted to go up today, it couldn't.
2. European banking stocks, especially Spanish and Italian ones, have been crashing since a few days. Therefore the significant underperformance of the Eurostoxx 50 index relative to the US indices. Even in the US, banking stocks were amoung the biggest loosers
3. 1 year Euro basis swaps are slowly starting to deteriorate again, a sign of trouble in money markets:

pmbug · Apr 5, 2012

Possibly related:

IMF managing director Christine Lagarde implored the United States to help back-stop debt-ridden European countries Tuesday, wading neck-deep into bubbling US political waters.

Speaking in the US capital, Lagarde said the 187-nation International Monetary Fund needed more firepower to tackle financial crises raging around the globe, arguing it was in the US interest to pitch in and help Europe.
...

http://timesofindia.indiatimes.com/...-on-US-for-more-cash/articleshow/12522131.cms

Euro pain imminent...

swissaustrian · Apr 5, 2012

Yesterday, uncle Ben made a rare appearance on Wall Street, too:

Ben Bernanke makes a rare Wall Street appearance

After completing a series of public lectures in Washington, D.C. last week, Federal Reserve Chairman Ben Bernanke quietly slipped into New York City for a private luncheon on Friday with Wall Street executives.

Fortune has learned that attendees included Jamie Dimon (J.P. Morgan), Bob Diamond (Barclays), Brady Dougan (Credit Suisse), Larry Fink (Blackrock), Gerald Hassell (Bank of New York Mellon), Glenn Hutchins (Silver Lake), Colm Kelleher (Morgan Stanley), Brian Moynihan (Bank of America), Steve Schwarzman (Blackstone Group) and David Vinar (Goldman Sachs).
Sources say Bernanke spoke at length about monetary policy, in an apparent effort to persuade attendees that they needed to take a more active role in helping to deal with the European debt crisis. He spent virtually no time discussing regulation, although that mantle got taken up by both Dimon (domestic regulation) and Schwarzman (global regulation).

http://finance.fortune.cnn.com/2012/04/04/exclusive-bernanke-breaks-bread-with-top-bankers/

KMS · Apr 5, 2012

Sigh. I really need my check to show up so I can buy some gold n silver.

ancona · Apr 5, 2012

I said in anbother thread that I believe we will not see much more in the way of recent attacks on silver for a while. I've been watching a lot of banker resignations and retirements lately and wonder if they know something we don't know. Same with corporate insider selling, which has never really abated. These guys are on to something, or at least have a better vision of the financial world from a semi-inside perspective. I think there may be blood in the water already, just not enough for us peons to detect quite yet. If we had taken our clues from the elites the last go around, we could all have made a fucking mint from the bottom all they way back up.

If I had the balls, I should have loaded up on BAC down around five, but I was afraid to go all in. If I had, I would be close to having enough to retire twelve years early.

rblong2us · Apr 5, 2012

ancona said:
I've been watching a lot of banker resignations and retirements lately and wonder if they know something we don't know. Same with corporate insider selling, which has never really abated. These guys are on to something, or at least have a better vision of the financial world from a semi-inside perspective. I think there may be blood in the water already, just not enough for us peons to detect quite yet.

My thoughts exactly
Mainstream medias not gonna tell us though ..........

swissaustrian · Apr 5, 2012

Bruce Kasting thinks robots were behind the plunge:
http://www.zerohedge.com/contributed/2012-14-05/fx

ancona · Apr 5, 2012

I give Bruce Krasting the same credibility I give spammers.

swissaustrian · Apr 6, 2012

Seems like Egon von Greyerz reads my posts here, because he said nearly exactly the same things I posted here yesterday in an interview which was posted today on KWN (just kidding)

Today Egon von Greyerz told King World News that around the world, the average debt to GDP is at a staggering 350%. Egon von Greyerz is founder and managing partner at Matterhorn Asset Management out of Switzerland. Von Greyerz also stated that even if the number was cut in half, to 175% debt to GDP, it would require the elimination of $25 trillion of debt. But first, here is what Greyerz had to say about what is happening in Europe: “Yesterday the Swiss franc came very close to the 1.20 level versus the euro. This is happening because bad economic news is coming out of Europe. Industrial production is falling and Spanish rates versus German rates, there is now a 4% gap, now people are getting worried about that again. So they are buying the Swiss franc.
The problem is that Switzerland is expanding its balance sheet like every other central bank. Switzerland is no better off, and to buy Swiss francs is not the solution. These investors are now attacking the euro/Swiss franc spread.
By doing that they are increasing the deficit of the Swiss National Bank because the Swiss are having to spend more and more money to protect their currency. So investors buying the Swiss franc is actually very bad for Switzerland. These investors are totally mad if they think that is protection for them...
“Very soon, these investors will realize that the only protection is to buy gold. So it’s quite possible gold has bottomed now. If you look at the move since the top of September, 2011, after the first reaction we have basically just had a sideways move.
We have basically seen $1,700 gold, plus or minus a little over $100, for the last seven months. This has not been a big correction. So, the correction has been relatively tame since the run-up to the high last year.
If you look at 2008, the correction lasted seven months at that time as well. From that perspective, it could be we have bottomed out. Regardless of the price action, the fundamental situation is improving by the day.
Both the ECB and the Fed, they are in total denial. Here you have a week when the ECB said, ‘No more support to the eurozone governments.’ Well, these governments are all hemorrhaging. Without additional financing, they will go under.
The ECB, so far, in the last few months, has given them 1 trillion euros, but as I said in my last discussion with you, my estimation is they will have to give them tens of trillions of euros.
People are now worried about Spain. Portugal is the same and every country in Southern Europe will go through the same thing. Unemployment is rising fast. These countries are going through austerity programs, which means their budget deficits will increase, not decrease because every single economic figure is declining.
So, these countries cannot survive without more money. Therefore, as I said, the ECB is in denial because it will only be a very short time before they will need to print again. It’s the same with the Fed and the FOMC minutes. The are saying no new asset purchases.
Well, it’s ridiculous because here you have a country that is not doing anything to cut down on its deficits. Consequently the US deficits will continue to increase at an accelerating rate. So, the Fed will absolutely be forced to print money.
This money printing, whether it happens today or tomorrow, it’s actually ongoing all of the time. We see it in all of the central banks balance sheets worldwide. They are all expanding. They might pause for a few weeks, but it is absolutely clear that they will continue to print. Participants in the gold market shouldn’t believe a word of what the central banks say.
The bottom line is investors must protect themselves with gold because QE will continue and it will accelerate. The average debt to GDP around the world is something like 350% and that excludes the unfunded liabilities. That’s total debt, private and government debt.
Even if we cut that 350% figure in half, to 175% debt to GDP, it would mean a reduction in debt, worldwide, of roughly $25 trillion. This just reinforces the point that governments will need to print in the tens of trillions of euros. Keep in mind this is the current situation, without any further disasters in the derivatives area.”

http://kingworldnews.com/kingworldn..._$25_Trillion_in_Debt,_ECB_&_Swiss_Franc.html

Island_Dweller · Apr 6, 2012

ancona said:
I give Bruce Krasting the same credibility I give spammers.

Seriously? I always thought Bruce made a lot of good points. Is there something in particular he's said or done that you disagree with?

swissaustrian · Apr 10, 2012

Top 5 loosers in the Eurostoxx 50 index (hint: 1 insurer and 4 banks) :doodoo:

AXA SA
-4,75 %

INTESA SANPAOLO SPA
-5,23 %

ING GROEP NV
-5,37 %

SOCIETE GENERALE SA
-5,85 %

UNICREDIT SPA
-7,21 %

swissaustrian · Apr 10, 2012

Swiss government bond market now has negative yields on the short end:
http://www.zerohedge.com/contributed/2012-15-10/houston-we-have-problem-switzerland

swissaustrian · May 14, 2012

The SNB is ardently defending the peg. The don't let the EUR slip below 1.2010
The new quartly SNB balance sheet numbers will look very ugly.

By the way, gold is very close to a major low in CHFs.
During the last few years, it always made a huge run-up when the SNB was forced to intervene in the currency markets (early 2009, May 2010, August 2011) It then retreated to the highest point of the preceding intervention over the following months and returned to it's inevitable rising pattern again. The current downside target is CHF 1450, the initial may 2010 high:

5 year chart, watch the periods of fx intervention (early 2009, May 2010, August 2011)

swissaustrian · May 18, 2012

As I said in the post above. Gold touched the long-term support of CHF 1450 ... and bounced back. Now it's over CHF 1500 again. It once again proves that gold is a currency, no matter what fiat you mesure it in.

In the meantime, the SNB is trying hard to defend the EUR/CHF peg, keeping it in a very tight trading range (1.2009-1.2011) This has been going on for more than a month now.

swissaustrian · May 24, 2012

Presented without comment

:

rblong2us · May 24, 2012

so what did it cost SNB to knock down a 0.7% spike ?

swissaustrian · May 24, 2012

rblong2us said:
so what did it cost SNB to knock down a 0.7% spike ?

Pressing a few buttons on a computer keyboard ffftt:

... that's what "money" creation looks like these days

They've more than doubled their balance sheet since the Euro crisis started in late 2009.

pmbug · May 25, 2012

swissaustrian said:
...
They've more than doubled their balance sheet since the Euro crisis started in late 2009.

"This is not the monetary inflation you are looking for."

rblong2us · May 26, 2012

http://www.goldmoney.com/gold-resea...medium=email&utm_campaign=w21-2012-newsletter

Swiss franc peg called into question
2012-MAY-23
In recent months the Swiss National Bank (SNB) has been facing growing criticism as a result of its attempts to suppress the value of the Swiss franc. The SNB has been buying euros in an effort to stabilise the euro at the 1.20 Swiss franc mark. Swiss parliamentarians have also started to question the auditing processes for the country’s gold reserves, while some conservative politicians are backing a private initiative promoting the introduction of a new gold franc.

Many Swiss are asking why the SNB is trying to prop up the euro. In Q1 alone the bank spent 1.7 billion francs on open market operations, buying the euro whenever it has looked like falling through 1.20. These measures are aimed at protecting the export and tourism sectors. The 2008 financial crisis also forced the SNB to engage in unprecedented money printing in an effort to prop up the country’s banking system. But critics say that this is destroying the country’s sound money reputation and undermining generations’ worth of hard-earned national prosperity.

“The Gold Initiative” led by Luzi Stamm's SVP party has also been attracting attention. This initiative is trying to promote greater disclosure about the status of the nation’s gold reserves, and – as with similar campaigns in Germany – is trying to get the SNB to repatriate gold held abroad. The initiative also wants to place strict limits (golden chains if you will) on the SNB’s ability to sell gold. Supporters of this campaign hope to collect at least 100,000 signatures from Swiss citizens in a push for a national referendum on the issue.

Another private initiative that is finding support among conservative politicians is calling for a prompt introduction of a new gold franc. This gold franc should function as a parallel currency to the Swiss franc and protect citizens from devaluation and the financial market risks. Yesterday the National Council's Committee for Economic Affairs discussed this issue, and supporters also hope that this idea can be put to a referendum.

Gold is slowly moving back into favour among Switzerland’s economic elite.

Roman Baudzus

swissaustrian · May 31, 2012

As of today, I've started to buy currency hedges for my USD-denominated assets (stocks, speculative paper trades). USD/CHF is above 0.97 CHF, close to the long term downtrend line which is currently at 1.01 CHF. The chart ends on 7/31/2011, right before the SNB started the peg to the Euro. Everytime it has come close to the trendline, it was a good time to hedge. Additionally, the peg to the Euro might not be defendable, sending the CHF massively higher in a huge spike. I'm not taking these risks:

The other side of the trade for the US traders here on pmbugmeans buying CHF with USD. But don't blame me if the CHF falls further

swissaustrian · Jul 9, 2012

In June alone, the SNB printed another 60 billion CHF to defend the peg. That's a whopping rise of 20% in reserves in one freaking month. The SNB now holds an equivalent of 63% (CHF 365bn, GDP was CHF 580 bn in 2011) of the Swiss GDP in foreign exchange reserves. The official CPI is showing 1.1% annual DEflation:
http://www.ft.com/cms/s/0/840b26f8-...links/rss/markets/feed//product#axzz208MsCbHr

swissaustrian · Jul 9, 2012

And here you can see how extreme the SNB's monetary policy is compared to other nations:

ancona · Jul 9, 2012

WOW! That's some scary stuff. Just what the hell are tehy going to do if the Eurozone breaks up? What becomes of all those Euros they have??

swissaustrian · Jul 9, 2012

ancona said:
WOW! That's some scary stuff. Just what the hell are tehy going to do if the Eurozone breaks up? What becomes of all those Euros they have??

They have diversified their reserves into USD, GBP, JPY. They've also bought German, Dutch goverment bonds. These bonds trade with a revalution premium because the market is discounting the scenario that these countries reintroduce national currencies (Deutsche Mark, Gulden). This won't solve the problem by any means, however.
That's one of the reasons why we're trying to pass a constitutional ammendment requiring the SNB to hold at least 20% of it's reserves in gold, stored in domestic vaults:
http://www.pmbug.com/forum/f2/switz...les-snb-storage-only-ch-min-20%-reserves-434/

If passed, the SNB would have purchase gold for 45 bn CHF

I'm worried that it might be too late before this will be implemented

swissaustrian · Aug 1, 2012

The SNB is now printing an equivalent of 0.6% of GDP (~550 billion CHF) or 3 billion CHF EACH DAY to defend the peg = buy EUR. They can't even diversify their forex reserves out of Euros, so the share of Euros as of total fx reserves is growing. Things are totally out of control.

I've purchased 2 year (August 2014) EUR/CHF 1.10 puts to speculate on a collapse of the EUR/CHF 1.20 defense line. It might take a few months but this is going to end in a total desaster.

Switzerland Is 'New China' in Currencies

By Alice Ross
Financial Times, London
Tuesday, July 31, 2012

There is a "new China" active in the currency markets, according to analysts, as Switzerland's battle to weaken the franc inflates its stockpile of foreign currency reserves.

The Swiss National Bank was forced to buy tens of billions of euros in May and June after the eurozone crisis worsened, creating strong haven demand for the franc and threatening the ceiling the central bank set for its currency last September. The SNB is prepared to buy as many euros as it takes to hold the franc at SFr1.20 against the euro to protect the country's exporters.

As a result, Switzerland's foreign currency reserves have leapt more than 40 per cent this year to SFr365 billion ($375 billion), propelling it to the sixth largest holder of foreign exchange in the world from ninth last year, behind China, Japan, Saudi Arabia, Russia, and Taiwan.

The proportion of euros held by the SNB also ballooned in the second quarter of the year, rising from 51 per cent to 60 per cent. Foreign currency analysts said the bank was buying SFr3 billion worth of euros a day to defend the Swiss franc, with serious knock-on effects for the global forex market.

"Switzerland is the new incipient China," said Steven Englander, Citigroup's head of foreign exchange strategy.

The SNB is believed to be partly responsible for recent moves in major currencies including the Australian dollar and the Swedish krona as it seeks to offload some of its euros.

But that has consequences for other central banks, whose own currencies are rising in value as Switzerland sells its euros back to the market. The Swedish krona has hit a 12-year high against the euro in recent days, while the Australian dollar is at record highs against the single currency.

"Sweden will need to set monetary policy now with the SNB in mind," said Geoffrey Yu, foreign currency analyst at UBS.

Analysts also warned that SNB's half-year results, released on Tuesday, indicated that the central bank was struggling to rebalance its holdings as it appeared to be buying euros more quickly than it could exchange them for other currencies.

Figures showed a drop in the maturity of the SNB's bond holdings from four years to 2.8 years, which analysts said indicated that the bank was taking shorter-term positions because it did not know how long it would carry on accumulating euros at the current rate.

"The picture is one of a central bank that's not coping with how much money is coming in," said Kit Juckes, foreign currency analyst at Societe Generale.

The SNB declined to comment on its foreign exchange management strategy.

http://www.ft.com/intl/cms/s/0/d3176586-db29-11e1-be74-00144feab49a.html

pmbug · Aug 1, 2012

Zank you verzey much! /Germany

KMS · Aug 2, 2012

Dumb question alert.

With the amount of reserves in different currencies, and possibly facing the scenario,

If passed, the SNB would have purchase gold for 45 bn CHF

Why do they have to do it in CHF? I have a feeling the bullion banks would game the system on them immediately, unless the SNB was allowed (per legislation) to use a mix of currencies, so that no one currency was more singled out than others.

mike · Aug 2, 2012

ancona said:
I give Bruce Krasting the same credibility I give spammers.

Yeah, he always comes off as a statist to me.

swissaustrian · Aug 2, 2012

KMS said:
Dumb question alert.

With the amount of reserves in different currencies, and possibly facing the scenario,
Why do they have to do it in CHF? I have a feeling the bullion banks would game the system on them immediately, unless the SNB was allowed (per legislation) to use a mix of currencies, so that no one currency was more singled out than others.

No dumb question, they could use any currency reserves they want, absolutely.

I just calculated it in CHF as it is the unit of account for the SNB (and for me).

rblong2us · Aug 2, 2012

congrats on your nice new jacket SA (-:

Your posts are always informative

thank you for taking the trouble to keep us informed.

swissaustrian · Aug 2, 2012

rblong2us said:
congrats on your nice new jacket SA (-:

Your posts are always informative

thank you for taking the trouble to keep us informed.

pmbug · Aug 2, 2012

I was asked on another forum to clarify what the news in post #25 meant. Let's see if I get this right...

SNB instituted a peg to the Euro (defending 1.20) back in September 2011. They did this because Euros were flying out of Euroland into CHF (Swiss currency) and driving it up so high that it threatened to destabilize the Swiss economy (and definitely to signal the death of the Euro - no idea what stress it may have imposed on the "carry trade" markets). Euroland continues to buy CHF despite the peg and the SNB continues to print CHF to defend the peg. I'm guessing the Fed, etc. are all assisting the Swiss with swap agreements to buy some of their Euros with other currencies.

Capital flight out of the Euro has gotten so bad that the SNB is having trouble managing the FX reserves that they are accumulating in the process of defending their peg (can't swap the Euros for Dollars and other currencies fast enough). Thier out of control money printing is going to be highly inflationary for the Swiss at some point. They are also going to be left holding a very large bag of worthless foreign fiat when the system finally implodes (much like people were speculating vis a vis China holding dollars back in 2008).

swissaustrian · Aug 2, 2012

@pmbug: Entirely correct.

pmbug · Sep 4, 2012

The head of the Swiss National Bank has vowed to continue its policy of halting rises for the franc against the euro and has warned that a stronger currency would be a "substantial threat" to Switzerland's export-dependent economy.
...
Mr Jordan's comments were made almost a year after the SNB introduced its policy of keeping the franc weak by maintaining an exchange rate of SFr1.20 against the euro.

The move, introduced on September 6 last year, was put in place following overwhelming demand for Swiss assets from foreign investors seeking a haven amid the eurozone crisis.

The SNB was viewed as so credible in the markets that its franc policy was not tested until May, when growing fears that Greece could leave the eurozone prompted fresh demand for the currency.

The central bank has since spent tens of billions each month buying euros to weaken the franc and hold the exchange rate at SFr1.20.

That has helped the SNB's foreign currency reserves to rise to record levels. The most recent figures show SFr406 billion ($425.9 billion) in forex reserves on its balance sheet at the end of July, an increase of 71 per cent over a three-month period.

However, foreign currency analysts believe the foreign exchange reserve figures for August, due to be published in coming days, will show that the pressure on the SNB has abated in recent weeks amid a period of relative optimism over the euro.
...

http://gata.org/node/11713

swissaustrian · Sep 5, 2012

For the first time since months EUR/CHF has broken out of it's ultra tight trading range between 1.2005-1.2015. Arround 8 am ET today it suddenly surged to 1.204 and stayed there until now. I don't know what this means yet but it is definitely significant.

I can currently imagine two reasons which are both related to tomorrow's ECB announcement.

A) somebody knows the ECB is going to do something spectacular like yield caps for Eurozone sovereign debt.

Or

B) The SNB knows that the ECB is going to disappoint tomorrow and wants a bigger buffer zone for the defense of the 1.2000 ceiling.

swissaustrian · Sep 7, 2012

EUR/CHF now at 1.215. Seems like the capital flight to Switzerland has been temporarily stopped by yesterday's ECB announcement.

swissaustrian · Sep 28, 2012

EUR/CHF is still holding at 1.21.

But Gold made a new all time high in CHF (and EUR) terms yesterday.
http://www.businessweek.com/news/20...cords-in-euros-and-francs-on-currency-concern

swissaustrian · Oct 26, 2012

EUR/CHF is still trading at 1.21 with basicly no volatility. That's very unsual trading activity. :doodoo:
My guess is that the SNB has secretly increased the actual peg by 0.01 . Robots and stupid hedge funds will probably not attack the CHF at this level because the official peg is at 1.20 . Additionally, they've probably found a way to mask their ongoing fx reserves increases by using either the BIS or Switzerland's tbtfb UBS and CS as a proxy for the interventions. This way the interventions have no effect on the SNB balance sheet

pmbug · Oct 26, 2012

Thanks for the update sa. Yea "free" markets!

swissaustrian · Nov 13, 2012

If volatility disappears due to central planning, increase leverage:

Trading platform EBS says moving to half pip pricing in the EUR/CHF cross

- Says pricing change to take effect from November 26th.

http://ransquawk.com/headlines/trad...f-pip-pricing-in-the-eur-chf-cross-13-11-2012

EUR/CHF peg beeing attacked for the first time

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