The Swiss National Bank Wishes You A Happy Holiday

By Nic Lenoir Of ICAP

Interestingly enough some customers asked me yesterday my opinion on EURCHF, and my opinion was: it's a fallin knife, and every time it reverses the market posts a bullish engulfing day. My thinking was also that despite some short interest in Euroswiss, there is very little priced in for Swiss rates, and a suprise would most likely come on the hawkish side, which would add to downside pressure. Therefore a reversal was most likely going to be driven by intervention. Little did I expect we would see that today!

The market has been making historic lows, and tested the multi-year support line that joins the lows of 1978 and 2001. We can see on the chart that there is quite a bit of divergence on the monthly RSI. The zooming on today, we see that the market made new lows and reverse to post a bullish engulfing day on SNB intervention. Taking a step back and looking at the market since the 2007 high, we see that the previous 4 major lows have been made on bullish engulfing days. RSI is also extremely oversold so there is probably some room to drive traders to profit taking faster than usual.

Recently the intervention attempts of the SNB have been relatively weak and the market leaned into it eventually breaking support. With new historic lows made, it is likely the SNB will flex a bit more muscle this time and drive speculators back up bit. We would therefore recommend buying EURCHF here and use a close below 1.4238 as a stop. The risk is for further intervention and a retracement at least up to 1.46/1.47.

Good luck trading,

Nic

Comments

[Lionhead]

Nic, concentrate on gold & silver, not this paper rubbish.

[Jeanbon]

Long CHF could be a very good trade. If Europe falls apart and I know there

are tons of Hedge Funds waiting to bet on that, the Swiss Franc is a very

safe bet. The Country has an incredible sound balance sheet and the only

risk to the country are Credit-Suisse and UBS. But for the moment, the

Swiss Franc could be a very good bet. In addition, tons of very rich people

are fleeing the UK, Germany and France to live in Switzerland etc...

Hedge Funds could push the central bank to the wall in this Euro CHF game.

[Jeanbon]

L O L !!! Excellent Quote !!!

Intervention not to mention, but after all, a very sad tale. As the EURCHF

plunges to a new 52 week low, the Swiss Central Bank is expanding it's

foreign currency exposure by blindfold intervention. Of course, Switzerland

is more than 10 times smaller in terms of central bank capacity than the FED.

But it has now more than doubled it's holdings of foreign currency in the past

3 years to over 100 Bio. If we compare the value of all Macro Hedge Funds

vs. the Swiss Central Banks Balance Sheet, and imagine how many beautiful

high gamma trades they could set up through volatility bets I would say:

Let's get ready to rumble. 

[mark456]

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