Europe Scrambles For Swiss Safety As EURCHF Plummets At Open To All Time Lows

Tyler Durden's picture

Someone is very, very nervous in Europe as it took precisely zero time for the various CHF crosses to plunge to all time lows. The chart below shows the EURCHF which just opened about 140 pips lower than the Friday close. And while there is little if any movement in the crap currencies, i.e. the USD and the EUR, the flight to fiat safety has never been as profound. Since the CHF is a direct proxy of gold in the commodities space, look for gold to take out $1,600 as early as a few hours from now when the market reopens. Also, expect a possible SNB intervention any minute as the Reuters IFR article below speculates.

EURCHF:

From Reuters:

SNB's Vice-Chairman Jordan highlighted this week that not only were they "very concerned" but that they were "monitoring the euro franc exchange rate very closely". We now have suggestions that the Swiss would look to impose capital controls in order to limit safe haven inflows and thus CHF strength.

The comments from Jordan at the very least mean that the market will push out the timing of rate hikes and flatten the money market curve further. Under normal circumstances these lower yields would help to take the shine off a currency.

So what are the options? Firstly, capital controls while being in favour in the EM world and endorsed by the IMF as a policy option would likely do more damage than good to the Swiss economy. Its big banks (still too big to fail) have been hurt by the stronger CHF and talk of new round of job losses has already surfaced as a result.

Capital controls for an economy that gains much from its financial sector would not be appropriate. Second, there is the option of negative interest rates. A look at the Swiss interest rates implied by USD/CHF forwards shows that we are already there with regards to negative rates. If one works out the implied rate on the 3-month then we have a rate that is NEGATIVE 1.50-2.50%. So it is debatable whether a policy of officially shifting rates into negative would have any real impact.

This leaves the potential that when the SNB deems the CHF to have increased the risks of deflation we may get more action on 1) either the intervention front or 2) government support for exporters to help compensate for the stronger CHF.

Which is preferred will depend upon whether the SNB can overcome the criticism of its prior aggressive intervention which resulted in record losses last year. The problem with intervention is that the small open economy would be under pressure to meet what is a global demand for CHF and thus would continue to be ineffective. A better option is direct relief to the exporters but at the very least the concerns over CHF strength means that rate hikes from the SNB is still some distance away.

So far the concern that the SNB will do anything is not preventing traders from pushing the EURCHF to the unprecedented border of 1.13 any second. Next up: rumblings of Euro-Swissy parity?

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THE DORK OF CORK's picture

If the banking system is fucked the Franc is fucked.

I think its a irrational move - although I guess we all know you can make serious money from irrationality.

Sophist Economicus's picture

Agreed.   For whatever reason folks still think the Swissy is a proxy for a gold backed currency - even though it hasn't been for a while and has  exposure in Eastern European debt.   But, I for one, have been riding a small position - will be tightening stops for sure

snowball777's picture

Prescient, given the itchy trigger-fingers of the SNB. At least buy some chocolate on your way out. ;)

Ahmeexnal's picture

This latest move isn't much the CHF going up. CHF has been going up against all lately yes. But now the move has to do more with the EUR on it's final descent to the dustbin of history.

oldman's picture

There might be an impression in the minds of individual investors that it would be smarter to hold a currency of a country that has a long history as a safe haven and an independent, stable, and well-ordered society without a military budget, AND a very large gold reserve for the size of its population, rather than have ALL of one's funds in dollars, euros, yen, etc. In a squeeze the Swiss could and might return to gold backing easier than most nations with an international reputation as bankers.

It is too small to be the reserve currency, but that might not be such a bad idea when so many other currencies are under great pressure with no where else to go but------

Just a small self-funded insurance policy that is time proven against this type of collapse

I heard this argument made in the 1970's an 1980's by very conservative bankers in the US who also thought gold was the only true money but needed some funds in cash.

They always laughed at anyone who asked about selling gold saying, "serious people do not sell gold". I thought they were too conservative then and am only now beginning to understand what they meant.

Comments welcome---my education is certainly incomplete        thanks    om

Urban Redneck's picture

for what it's worth-

I don't think there is any chance of CHF returning to even a fractional gold standard.  The way I read the SVP plan was that there would be a parallel floating Gold Franc (predominantly for the isolationists and gold bugs in the domestic market).  Right now the EUR is used in parallel with CHF in many places, so adding another is not that big a deal, especially compared to previous FFranc/DMarc/ILira/ASchilling days.  Perhaps a native German (or French, or..) speaker can clarify that point, since if the Federal government doesn't pass legislation (and arrive at some bizarre compromise to do so) then the specifics of the current SVP plan should be reflected in a national referendum. 

CHF speculation is predominantly and exactly that (speculation as opposed to safety) because the SNB, for all practical purposes, either recycles the demand for CHF right back into foreign fiat reserves or outright creates CHF (which in any non-bizzaro-word would devalue the CHF).  Even though the two primary practices should result in either no net fluctuation or outright depreciation the CHF strengthens. 

The relatively small government debt market (federal/cantonal) is peculiarly insular (in usual Swiss fashion), domestically focused and driven, and rather divorced from F/X.  The exit from the CHF speculation/fear hedge could also be problematic - the ride down is often faster than the ride up, and the central bank and all the exporting businesses benefit from it, so the motivation to intervene to prevent fiat depreciation doesn't exist to the same degree in Switzerland as in other developed markets.  Also the SNB, ECB, and PBoC have a strong motivation to weaken the CHF against EUR to prevent certain other European economies from being viewed in the same light as the PIIGS (or Iceland, depending if one is viewing from the lenders' or borrowers' perspective). 

Then there are the two big banks, which account for a huge portion of the external debt and also a significant portion of GDP.  As far as I know, there aren't any other central banks that openly scream and put in their official publications "Too Big To Save" which could get interesting when the shit starts to hit the G14 banks. 

For all the external strength of the CHF, the domestic purchasing power is a joke, even for imported goods (which of course don't actually get cheaper as CHF strengthens). 

Because I live predominately in Switzerland, I am in CHF by default.  Both personally and professionally I hedge my currency exposure, but in theory a hedge costs money and doesn't make money unless someone is wrong in their predominant investment/trade thesis.

Reversion to the happy mean in Switzerland to many Swiss means a return to a boring, bland, and weak fiat - and the rest of the world be damned. 

good luck   

So Close's picture

Gold and Silver should benefit form flight to safety.   In looking at the latest COT silver position reports I see there are still way more silver shorts than longs.  What do they know/think that I/we are missing.   Am long PM's.... just looking for the sucker punch....  Ideas?   http://news.silverseek.com/COT/1310758339.php

 

 

Quintus's picture

Depends on what you mean.  There is always a huge net short silver position on the part of the 'Large Commercials' category, but there is, really, only one trader behind them - our old friend JPM.  What do they know?  Well, they know that the Fed has their back and will cover them for any losses incurred in their mission to suppress the price of silver on behalf of the Fed.

So Close's picture

Thank you Quintus...    Have heard of the positions but had not actually seen the numbers.

disabledvet's picture

huge net short could have been covered when the CME "soared" margin requirements a few months back--if the rumor was true at all--and it sure had all the appearances given the outright panic by the regulators at the CME. My guess is they're acting like the French General in charge of defense when the Wermacht attacked France in 1940.

Prometheus418's picture

Honestly, I don't understand the mechanism fully since I only buy physical PMs with cash, but it is my limited understanding that shorting PMs on the Comex is the safest way to actually purchase large volumes of PM.  

If I have it right, and there's no guarantee here, it covers the purchaser both ways.  If the short suceeds and the price drops, they are paid the difference in currency.  If the short fails, they can take physical delivery (if the Comex has it, that is) by paying the for the metal at the initial short price.

I could be way off, though- the whole thing is outside of my personal experience.

 

So Close's picture

Thank you sir...  I appreciate it..  Did not consider that.

hedgeless_horseman's picture

I am not a paper metals trader. 

However, if the "short fails" and the price of the metal rises, then you would have to buy at a higher price (at a loss) to cover the short position.  There is no taking delivery, except possibly for whoever loaned you the metal, in this case Comex.

Prometheus418's picture

Thanks for the correction- I've heard the short = fastest way to ensure physical delivery quite a few times, but your explanation makes more sense.

Apologies for jumping in where I wasn't sure.

vast-dom's picture

if outside your experience, then why take up space with statements rather than specific questions?

magis00's picture

"I miss 100% of the shots I don't take."

-- Wayne Gretzky

BlackholeDivestment's picture

...what do they know? Good question, so tough to figure this one out, think I'll listen to a tune while thinking about Black Swans Black Holes and Revelations. http://www.youtube.com/watch?v=BJ7NVjZ-Eyg

http://thewebfairy.com/killtown/oddities.html#September11,1941-Pentagon_construction

slewie the pi-rat's picture

hey, SoClose;  on the crimex, shorts = longs.  always, by definition.  there are just shy of 113K contracts open, up a bit over 1500 for the week. 

including option contracts, we have have abt 163K contracts involved, up a shade over 4K on the week.  [5,000 troy oz of silver/contract]

the figures are obscure, b/c the bullion banksters do not want people to be able to read the strategies behind their  positions.  or, as someone like david morgan might say, to hide the price-manipulating trading of the banksters. 

david morgan's analyses of these reports have been some of the prime data presentations to the CFTC over the past few years.  they still haven't dealt with his concerns, and neither side has "taken off the gloves" yet, except for a few minor screaming episodes.

so, the guy is a team leader, but i have disagreed with his "estimates" which he uses to analyze price possibilities. about six months or so ago, he (re-?) published his above-ground silver inventory estimate:  1 Billion troy ounces.  this is too low, i think, and it is a long analysis as to why, but my heretical opinion is based on world coinage figures.  any of you who know of or have the official RED BOOK of US Coins, published yearly since 1947, will have the same figures i look at for the US.  with re-melting of coin silver for many years, i'm not a very argumentative heretic, but i really do think he is low, possibly by, like, 3X, world-wide.  my point being that the "supply" is larger than the supply/demand price "forecasts" postulate.  possibly much, much larger.

when i write of "rivers of silver" i may be dead wrong, but i'm not kidding in the least.

Manthong's picture

OK, lets say 3 billion ounces.. at $40.00 oz (just spiked 50 cents on Globex), that's $120 billion, and only just less than half of what Timmy stole from FERS alone and will "reinvest" as soon as the next couple trillion of US debt is agreed to.

Very rare and way more precious than people acknowledge.. yet.

slewie the pi-rat's picture

i've always been partial to both Silver & the Lone Ranger

Prometheus418's picture

I'm okay with rivers of silver- my bet is on it being useful as an interim transactional currency for day to day expenses in a way that gold is not likely to be.  For that to happen, there need to be a lot of silver coins that can move into circulation.

Here's an interesting new thing, though:

http://goldandsilver.ebay.com/

If they can add some statistical tracking, it's got some real potential to help determine the physical spot prices of bullion without the comex.  I just hope they're not killing it by jacking up the transaction fees.

slewie the pi-rat's picture

the bullion banksters have quite the "trade" also.

as long as we have fiat, we can trade it for gold and silver (coins, etc) whether on ebay or elsewhere.  world-wide, wherever fiat exists (everywhere?)  it can be traded, locally, for gold and silver, except where restricted for poitical reasons. 

so, we already have this system in place, and working.  if you wish to use it.  PMs = all currencies, world-wide.  kinda medieval, but with supertankers and air travel.  and printing.  people call it names, like barbaric relic, or tradition, b/c they "believe" in fiat.  it should be called fiat/debt or maybe fiat/credit might be a bit softer and more palatable, which has 3 a's!  whatever people have is whatever people have.  it will be adequate for any collapse, by definition, since there really isn't much of anything else, moneywise, except smoke and mirrors, bullshit, promises, and legal tender, which should be filed under bullshit. 

fiat serves its functions, but if these greedy bastards blow the fuk outa their very own goose-that-laid-the-golden-egg situ, again, tough shitsky.  let the chips fall and move out smartly.

 

RobotTrader's picture

EUR/CHF move is very long in the tooth and getting very extended.

I expect a dramatic reversal soon, as everybody and their brother in FX is band-wagoning and pyramiding on this "no brainer" trade.

I mean, really chasing FXF right now would be like the last minute IBD Mo-Mo Monkeys chasing LULU or FOSL.

Would you buy a gap up on this? 

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=fxf&inst...

 

 

Mr Lennon Hendrix's picture

Other than the dollar, the AUD looks strong.  The dollar....lol!

Libertarians for Prosperity's picture

RoboT

I've noticed you haven't posted charts in about a month or two.  Has your contributor privileges been revoked? 

Infinite QE's picture

Robot's been pumping for the $ for 6+months. Obliterated if you listened to him.

Libertarians for Prosperity's picture

Impossible. 

He's a trader and doesn't make any predictions past a day or two, and constantly comments on the lunacy of the markets.  Why is it so difficult for you idiots to understand this?  All you doomers have been dead wrong for over 2 years - it's probably about time for you guys to STFU.

 

Libertarians for Prosperity's picture

Holy shit, that was witty!

LOL

Typical lower brain-stem libertarian.....

Infinite QE's picture

Hmmm, so you've been posting for a whole 7 weeks here and you've figured it all out! Probably been trading for 8 weeks then found a new guru to empty your account. Genius. I'm up roughly 210% over the past two years. Call my 900 number. I'll sell you a clue.

Libertarians for Prosperity's picture

You're going to sell me a clue? 

Can I buy the letter "E"?

What are you, some sort of Pat Sajak wannabe?

If you want to play games, tell me where my socks are. I think they're under your bed, but your wife claims I never wore any. 

Help me solve this puzzle!

I'll buy an O!!  Can I buy a consonant?  How about a S and a K?

C'mon Big Money!  Big Money!  Big Money!

LOL

StychoKiller's picture

"Brother Silas drew a wife, Judas drew his pruning knife..."

tmosley's picture

Care to elaborate over who has been wrong on what over the last two years?

I look around, and all I see is decay in the financial system, so much so that "the end of the world as we know it", aka government debt default, is actually talked about as a serious issue on MSM programs.

But then, you are just a troll, trolling for and with no reason nor purpose.

Why don't you change names again?  Maybe we won't see through you immediately next time!

lieutenantjohnchard's picture

wrong. epic wrong. robotard is a buy and hold, frozen deer in the headlights scared investor. through his own posts he owns mo, vz and hd. he has 30% of his money in the market. this information comes directly from the 'tard, not me. the last thing he claims to be is a trader given that he loses huge when he attempts to trade. that's why he posts so much. he's not trading. he's surfing the internet. and btw: if you think some of us are doomers then go read some of the 'tards early posts.

phungus_mungus's picture

Can goods, shotguns and ammo bitchez...

Long-John-Silver's picture

Beans, Bullets, and Bullion or Guns, Grub, and Gold.

Libertarians for Prosperity's picture

Rednecks, trailer parks, white cone-shaped hats and doomer goons.

Mr Lennon Hendrix's picture

Stereotypes, liberal farces, Harriman-Bush, and Scull and Bones, snitch.

cosmictrainwreck's picture

seriously....who the fuck is that guy?

Bay of Pigs's picture

Numerous aliases. William the Butthurt, GoldenDouchebag, etc...

Apparently he missed TD's classic smackdown on Robo just last week.

And look at the "doomer" trade. Gold up YOY +$400.50 +33.57%. Silver up $21.80 122%. 

 

I Am The Unknown Comic's picture

Unfortunately I missed the TD takedown.  Anybody got a link?  Even the name of the thread would be good and I'll go look it up.  If not that, then can anybody remember what day it was and I can scan the threads for that day.  I really want to see this.  When TD takes somebody on in Fight Club, it is generally spectacular.