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After A Two Week Hiatus, SNB Comes Roaring Back In Swiss Franc Manipulation

Tyler Durden's picture




 

Well that was quick. On June 17 the SNB announced it was ending currency interventions. After much ridicule, a straight line appreciation, and a SNB balance sheet bloated with euros, the SNB has realized the folly of its non-interventionist ways in a manipulative, Keynesian world, and at midnight eastern time came storming back into FX intervention by gobbling up another roughly ten billion in EUR, causing a 200 pip spike in the EURCHF. And as we have discussed previously, such episodes of lunacy do nothing but load up the country's balance sheet with even more euros, while the intervention half time is so low now to be negligible. Bloomberg reports, "The franc is already expensive but above 1.30 it will become a serious issue,” said David Kohl, deputy chief economist at Julius Baer Holding AG in Frankfurt. “They’ll wait for the right moment to punish speculators. It’s only a question of time, the appreciation is simply too fast." Unfortunately for the SNB it will be speculators who have the last laugh, and with Switzerland now the target of every new deposit account opened in a bank-distrustful Europe, nothing that the SNB does will matter to curb the inflow of funds.

As Bloomberg correctly points out: "Resuming currency interventions to protect Switzerland’s export-led recovery would increase the SNB’s record currency holdings, leaving it vulnerable to larger losses as the euro weakens. The central bank may nevertheless have to run that risk as the franc climbs against the euro on investor concern that the euro-area debt crisis will worsen.

Yet despite the burden of holding half your GDP in Euros on your central bank balance sheet, it is not stoping the central bank.

“The hurdle for interventions seems materially higher now, in light of the financial risk posed by the sheer size of foreign-currency exposure” on the balance sheet, he said. Thorsten Polleit, an economist at Barclays Capital, said the SNB “might give a verbal warning to markets first.”

SNB Vice President Thomas Jordan said June 21 he doesn’t “necessarily” expect the franc to appreciate further and the central bank won’t need to counter gains as long as they reflect the economy’s strength. The Zurich-based central bank would only act to counter an “overshooting” and if the risk of deflation returned, he told Swiss television.

“The SNB is definitely very uncomfortable with its large currency reserves,” said Ursina Kubli, a foreign-currency analyst at Bank Sarasin in Zurich. “It could have been considered a capitulation, had they just stopped with interventions. The only way out was to declare the deflation risk as over.”

This whole episode only goes to show that in world markets increasingly defined by intervention by the money printers, a period of normalcy for anyone may only last all of two weeks before 'speculators" overrun it with the imbalances of everyone else who is neck deep in manipulation. It would appear 1.30 is the magic level in the EURCHF: all FX traders will now home in on this like a beacon making further intervention not only necessary but imminent.

 

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Fri, 07/02/2010 - 08:10 | 448685 hellboy
hellboy's picture

I thought I was safe trading fx... no insider trading, not too much intervention... how wrong I was...

Fri, 07/02/2010 - 08:16 | 448692 Cheeky Bastard
Cheeky Bastard's picture

LOL on the "no insider trading" premise. FX is the worst of all worlds when it comes to markets.

Fri, 07/02/2010 - 08:20 | 448695 hellboy
hellboy's picture

I've always been told equity is the worst... doesnt fx have something like USD3tr daily volume.

Fri, 07/02/2010 - 08:26 | 448701 Cheeky Bastard
Cheeky Bastard's picture

Equities are bad, but nothing as FX. Just to give you an example; Soros broke one of 3 major currencies at the time with no more than 10B and 200:1 leverage. That says it all; plus it doesnt take much to move, say NZD or AUD or something smaller like that. Look at the move in the EUR before the EMU announced the 1T bailout, says it all really.

Fri, 07/02/2010 - 08:41 | 448731 hellboy
hellboy's picture

thanks for the info, learning a bit every day! (1+x)/∞, where x is the new stuff I learn...

Fri, 07/02/2010 - 08:45 | 448739 Cheeky Bastard
Cheeky Bastard's picture

I mean this is not "teaching" or telling you technical stuff about FX [not really my area of interest or expertise; Bruce is King of FX round these parts] more of a "what can be done" sort of stuff. If you're a CB you can move any currency anyway you want. Look at EUR today; again; rallying like it 2006.

Fri, 07/02/2010 - 08:49 | 448754 hellboy
hellboy's picture

for me its still learning, I dont know any of this stuff...8 weeks ago I didn't know what a bond was, if that puts things into perspective... 

Fri, 07/02/2010 - 09:01 | 448798 Cheeky Bastard
Cheeky Bastard's picture

LOL; sorry then; I didnt know you were a total n00b to this stuff. You'll catch on quickly just find 1 area you are most interested in and focus 90% of your energy learning as much as you can about said area; the rest; just learn the fundamentals so you can assess correlation properly.

Fri, 07/02/2010 - 11:16 | 449198 Whizbang
Whizbang's picture

Cheeky's right. Educating yourself is the most profitable thing you can do. Although this is kind of a crazy time to try learning about proper market operations because everything is jacked up by Central Bank actions.

Fri, 07/02/2010 - 08:14 | 448690 newstreet
newstreet's picture

Quite sure they were in yesterday as well.  Better buy'em.

Fri, 07/02/2010 - 08:17 | 448694 mcguire
mcguire's picture

per yesterday's action, buying euros may be a bonanza... im not sure what is happening, suspect something like an annoucement that the euro will be given a greek (pigs) haircut, something weird...

in any case, the exodus from euro to frank doesnt jive with what we saw yesterday... seems like the "flight from the euro" because of bad debt thesis is now in question.

Fri, 07/02/2010 - 08:32 | 448708 mcguire
mcguire's picture

been stuck all night on yesterday's movement, trying to tie together the fx, gold trade into one unified thesis.  best i can come up with is something like this:

1- it is well known that a large position was put on by multiple players that there is a default coming by one of euro members (greece), so its a portfolio that is short euro, long gold is established.

2- this position gets squeezed and was yesterday unwound via short covering.. but to do this squeeze, there must have been some anticipation of an event that supports the "capital will" to drive such a move...

3- one such event would be, and this is stupid and the best ive got right now, the announcement of a comprehensive stress test result, showing everything is really ok, no threat of default, etc.  i know its stupid, but it worked here in the us...  so that announcement comes out and is hyped by all the MSM sources... and once the announcement is made, all of the capital used to push the short squeeze is covered.

 

??? 

Fri, 07/02/2010 - 08:45 | 448743 fuu
fuu's picture

2- this position gets squeezed and was yesterday unwound via short covering..

 

Short covering is usually an orgy of buying. Price action should have gone up if there was a strong bid no?

Fri, 07/02/2010 - 08:49 | 448756 mcguire
mcguire's picture

meaning, the short euro/long gold position... so orgy of buying in euro, orgy of selling in gold..

 

Fri, 07/02/2010 - 10:34 | 449093 fuu
fuu's picture

Ok that makes sense. I hadn't had my coffee yet when I posted this morning.

Fri, 07/02/2010 - 08:57 | 448782 mcguire
mcguire's picture

here is the the thing... gold i have always suspected would get hit in a deflationary crunch, just like everything.. .and it would get hit, but just not as hard as everything else, just like 08-09.  bull trend line has room to go to 800 level before the chart gets broken.

 

so, everything in past few days fits... equities break down (1040 in s/p), oil breaks down (although ive got my eye on oil in case of trouble in strait of hormuz), and gold breaks down as part of a general deflationary "fire sale, sell good assets to cover bad"... but the euro rallies?  why??? if it is a global deflationary story, why a flight to the euro? 

 

still stuck... :(

 

Fri, 07/02/2010 - 10:31 | 449087 Panafrican Funk...
Panafrican Funktron Robot's picture

The G-20 might have provided a clue, if the general trending in Europe is towards austerity, and the general trending in the US is towards QE, then it stands to reason that the Euro actually has a decent shot at gaining strength relative to the USD.

Fri, 07/02/2010 - 10:36 | 449097 fuu
fuu's picture

Ahhh! That also makes sense. In a world of blind men the one eyed man is king or soemthing like that.

 

Been so long since we saw responsible policy it takes a bit to pick up on it. Thanks for the insight I had missed.

Fri, 07/02/2010 - 10:51 | 449146 Panafrican Funk...
Panafrican Funktron Robot's picture

Precisely; I agree with the overall strat of holding fiat during this deflationary period and then picking up commodities as we start to spike towards inflation, but it occured to me recently that I was holding the wrong fiat.  Given the likely headwinds in implementing QE 2.0 post-midterm elections, this will have to happen within the next 3-4 months.  I don't think people are buying the argument that the Eurozone debt problems (as a whole) are actually any worse than the US debt problems, and again, they're moving in the correct direction insofar as restoring fiat value, we're (intentionally) not. 

I know the general argument being made here is that the SNB intervention here is folly, but I'm not as convinced on this point, because it assumes that CHF valuation is correct; I think CHF has been consistently massively overvalued and I think the SNB knows this and is getting a hell of a deal.  This is the real story here and the implications are pretty interesting.

Fri, 07/02/2010 - 08:26 | 448703 AUD
AUD's picture

"investor concern that the euro-area debt crisis will worsen"

So concerned they're dumping gold?

Fri, 07/02/2010 - 09:07 | 448815 mcguire
mcguire's picture

exactly... that is my question...  how do these two things fit together..

Fri, 07/02/2010 - 09:20 | 448848 Tipo anónimo
Tipo anónimo's picture

Watch the gold prices in the fall of 2008.  There were some huge downdrafts because market players were blowing themselves up and needed to sell money to buy paper to satisfy their margin calls, forex explosions, etc.

Remember when silver hit 8.50-ish?  It wasn't because retail demand was down.

$21 in March '08, $8.50 in Nov. 08.

Fri, 07/02/2010 - 09:39 | 448907 mcguire
mcguire's picture

yes, and this is my personal thesis... that history will repeat itself, and that we will see a down draft in the pms, even though i am extremely bullish on them for fundamental reasons.  i just dont get how the fx move fits in with this picture.   my wet dream is equity crash, pm crash, flight to $... with the only position being short equities... hold the short until qe2 announcement, then cover and load up on pms for the endgame.

Fri, 07/02/2010 - 08:31 | 448707 Ivanovich
Ivanovich's picture

Doesn't look like CB intervention to me.  Looks like normal Euro buying.

Fri, 07/02/2010 - 08:39 | 448724 velobabe
velobabe's picture

statement of the day:

rick santelli 8:35 EST after jobs report.

scoff,,, scoff,,,

let's talk reality here, instead of D E A D economists.

Fri, 07/02/2010 - 09:28 | 448875 John McCloy
John McCloy's picture

Agreed. I caught that. Seems like common sense is as rare these days as an extra toe. The government cannot create meaningful long term jobs that benefit the economy they can however create temporary " debt accumulators"

It is all about Small business and the natural demand for the small business products and services + healthy price discovery through competition. It is always those living on the Tax payer federal dole with pieces of papers that say their opinion is worth a cent that keep preaching " keep the faith". The answer is evidently that they have jobs as calmers of the dissent and opinions coupled with complex math and theory for their pseudo science and honestly because they do not want to be OUT of a job and in the pool amongst us mortals looking to scoop ice cream.

With most of these economists and politicians I have never seen so many big words squeezed into such small ideas.

Fri, 07/02/2010 - 08:40 | 448728 egdehorez
egdehorez's picture

Your comment about bloated EUR balance sheet assumes the SNB doesnt convert its Euros to other currencies. There's no limit to how much a central bank can sell of its own currency because of the printing press. Intervention of this nature is a monetary policy tool intended to combat deflation.

Fri, 07/02/2010 - 08:55 | 448778 Oh regional Indian
Oh regional Indian's picture

Swiss? Export led recovery?

Hmmmmmm.... watches and bank accounts that hide stolen trillions.

Enigma and a pampered one at that.

 

ORI

http://aadivaahan.wordpress.com

Fri, 07/02/2010 - 09:51 | 448942 idle muesli
idle muesli's picture

Speak not of that about which ye are unknowledgeable!  Switzerland is virtually the only country to have a trade surplus even with China.

Fri, 07/02/2010 - 08:59 | 448792 BetterOffDead
BetterOffDead's picture

Sounds like Switzerland is the new China.  Where else will the bubble manifest itself?

Fri, 07/02/2010 - 08:59 | 448793 fajensen
fajensen's picture

The central bank may nevertheless have to run that risk as the franc climbs against the euro ....

And why is that bad? This will lower the cost of all the input to the Swiss manufacturing and raise the standard of living for the Swiss people since the "Made In China"-consumer goods will become cheaper too ... and interest rates can remain low.

Must banks fuck everything over to justify themselves??

Fri, 07/02/2010 - 09:05 | 448809 Bruce Krasting
Bruce Krasting's picture

if the SNB wanted to bang up the speculators Friday afternoon, before big number in the US, before a three day holiday is a great time to do it. By hitting a vulnerable market they achieve their objectives.

I see the Swiss effort today as as a desperate effort. They hit a weak market?? This will surely backfire and they will look stupid. From today's action I would conclude that 1.25 is in the cards. The SNB is just making fx traders rich.

When the losses from this are published, the SNB is going to look silly. Just another desperate CB that has no clue.

Fri, 07/02/2010 - 10:03 | 448985 newstreet
newstreet's picture

we'll look for another round before the European close.

Otherwise, the day is likely over.

Fri, 07/02/2010 - 13:11 | 449463 MGA_1
MGA_1's picture

Looks to be a massive currency crisis which will probably work it way over to the US soon enough...

Sat, 08/21/2010 - 11:03 | 534675 herry
herry's picture

Certainly a lot of details like that to take into consideration. Thanks windows vps | cheap vps | cheap hosting | forex vps

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