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On FX

Bruce Krasting's picture




 

On FX

Courtesy of Bruce Krasting

There was a mini flash crash in the EURCHF cross this morning. Two charts on the price move: (Link and Link

 

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I was watching markets on a screen. When I saw the EURCHF price break I called a lady I know on an FX desk. She picked up the phone after a few seconds and yelled at me: 

“We’re 16 bid. It’s a piece of shit!”
 
 
and then hung up...

 

Translation:

 

“FX Bank is prepared to buy Euros and sell Swiss Francs at 1.2016 currently. There is no breach of the CHF peg at this time. It was just some computers gunning stop losses. Nothing to worry about. Please excuse me, as I have to take another call. Have a nice day!"

 

The price break took place in under a minute; it might have been for just a few seconds. There are some reports that the Swiss National Bank (SNB) actual bought some Euros during the fray. I’m not sure that is true. If it did happen, then the SNB bought them from a computer, and the computer lost money.

What happened this A.M. shows that the EURCHF market is wound tight. It could uncoil quickly. I have no doubt that the SNB has resting orders in the capital markets for buying up to 10 billion EURCHF. I also don’t doubt their resolve to do more. But nine hours after the mini crash the EURCHF is sitting at 1.2021, a measly 0.17% away from the SNB wall. That’s too close for comfort. Something has to give. Another bad day in the Spanish bond market might do it.

If we see a headline in the next few days that the SNB was forced to actively defend the peg, and in the process absorbed tens of billions of Euros, it will be very unsettling across all markets. It would be a sign of financial desperation; the ultimate “risk off” move.

I don’t think it’s possible for the EURCHF to trade so close to the peg without some accident happening that could start the hot money rolling. Either we drift back up to the "safer" mid 1.20’s, or we're going to have an Intervention Party. This might sort itself out by the weekend. One thing is certain, the US VIX is not priced for a hard landing of the EURCHF.

 

 
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Fri, 04/06/2012 - 12:23 | 2321577 Zero Govt
Zero Govt's picture

"this stinks of a robot gone wrong"

we blame everything on the algos now when it could just be the usual of people getting away with murder fleecing stops ..will you let us know the 'culprit' if it emerges Bruce?

what it does smell of is the Bank of England and British Treasury in the 80's trying to defend a strong £pound... they got pounded!

And fuck me if this doesn't look like the same (stupid) King Canute of a scenario all over again

if the Swiss Bank committee members are losing a bit of sleep and waking up in cold sweats of a night with all the money they're pissing away defending their policy they can comfort themselves with the knowledge thousands of people like myself are sleeping comfortably with big 9" Cheshire cat grins atop pillows, duvet covers and matresses stuffed with their discounted currency ..i've 2 more beds on order 

Thank you Swiss Bank

Mon, 05/21/2012 - 18:23 | 2449048 ilion
ilion's picture

Some traders at Armada Markets (www.armadamarkets.com) have mentioned in the recent TV appearances that the 1.20 level will ultimately break and they are shorting this thing at every spike it will have over the coming months. Seems pretty logical to me.

Thu, 04/05/2012 - 23:31 | 2321258 MrSteve
MrSteve's picture

Should we bring back the old 1970s play and buy Swiss franc traveler's checks to store as a strong cash diversification against the USD?

I'm sure the bid/ask spread is a tad steep.....

Thu, 04/05/2012 - 22:44 | 2321207 ZeroPower
ZeroPower's picture

Bruce, are saying youre honestly surprised at the stop hunts that MMs do on a regular basis? EURCHF looks relatively stable when you compare it to EURUSD or even AUDUSD...

Thu, 04/05/2012 - 23:51 | 2321283 SAT 800
SAT 800's picture

That's as nothing, Canadian Womens. Bruce was surprised when the Swiss France fell from it's all time high of 1.44 to the Euro. He posted on here this fact, and the fact that he was "hanging on to his Swissies"; I immediately posited back that I was selling the Swiss Franc, big time, which I did; solely as a result of his article. The article explained that "citizens" in Europe were seeking refuge in the Swissie, vis a vis the Euro. This was obviously counter to the interests of the Swiss Government, which had considerable resources to counter it; So I acted. This gave me more than $100,000 profit in ten days. Do you learn anythng now; ? Or do you still want to ask Bruce his advice? Hint; Bruce is not a trader; he works at a salary fucking up customers accounts. The only thing I have; every year, is P&L. Nothing else. NO dividends. No salary. Do you understand now? Or is it still a mystery to you?

Thu, 04/05/2012 - 21:54 | 2321128 malek
malek's picture

The fun thing with the peg is the SNB can in theory defend it endlessly (contrary to the BOE in 1992) by buying EUR with CHF, using freshly printed CHF if necessary.
But that's only in theory because if some stampede out of the EUR into CHF happens, the SNB would effectively sell out Swiss assets to foreigners on the cheap, as with the peg they are blocking price increases by high demand which then actually devalues the CHF value of Swiss money, factories and real estate.

So in the end they cannot defend it endlessly.
I have the uneasy feeling if the SNB is boneheaded enough to not give up the peg on their own pretty soon, their resolve will be tested to the limit.

Thu, 04/05/2012 - 21:34 | 2321079 hannah
hannah's picture

whats FX....?

Thu, 04/05/2012 - 23:54 | 2321285 SAT 800
SAT 800's picture

Something even an un-educated idiot like you can make a fortune on! Please see the nearest advertisement.

Thu, 04/05/2012 - 22:28 | 2321185 ISEEIT
ISEEIT's picture

Gambling in toilet paper for the most part, but increasingly with the added thrill of geopolitical drama (farce protection hijinks:)

Thu, 04/05/2012 - 21:56 | 2321131 TSA gropee
TSA gropee's picture

Short for Forex or Foreign Exchange with regards to trading of foreign currencies. Perhaps some of the more learned here can expand on my simple definition.

 

Thu, 04/05/2012 - 20:29 | 2320925 barliman
barliman's picture

 

There is the famous qoute ...

"Those whom the gods would destroy, they first make Swiss."

I have said a number of times the Swiss set the 1.20 peg as a big FU to Obama & Bernanke.

When you fuck with the Swiss banks and the Swiss standard of living, you better be prepared for a fight to the death.

barliman

Fri, 04/06/2012 - 00:56 | 2321333 decon
decon's picture

Speaking as one of Swiss extraction, there's a reason they were Europe's mercenaries for many centuries.

Fri, 04/06/2012 - 02:23 | 2321406 barliman
barliman's picture

 

Hence the intentional absurdity of my quote

It would behoove people to ponder on why they were able to give up being mercenaries; but still require military service and have every soldier keep their issued rifle when they return to civilian life.

Trying to extort information from the Swiss (American citizens account information) is right up there with getting involved in a guerilla war in Southeast Asia or invading Afghanistan on the list of Serious Mistakes Your Country Can Make.

barliman

Fri, 04/06/2012 - 06:02 | 2321527 Moe Howard
Moe Howard's picture

Really? Seems they have rolled over. I don't think the Goons that run FedGov are too worried about some Swiss dude with a assault rifle in the closet. FedGov's army has ten years of real world combat experience. How about the Swiss?

Fri, 04/06/2012 - 14:04 | 2322698 barliman
barliman's picture

 

Moe. May I call you Moe?

The Swiss have something more powerful than any army. They have information about who has been storing what in their banks for centuries.

FedGov's army would face significant logistical challenges in attempting to invade Switzerland. They were able to remain neutral during the World Wars.

Do you think Hitler cared about their neutrality?

barliman

Fri, 04/06/2012 - 00:06 | 2321301 SAT 800
SAT 800's picture

This is a false quotation; and merely stupid.

Thu, 04/05/2012 - 20:14 | 2320894 DeadFred
DeadFred's picture

So does BATS do FX? I'm waiting for the revenge scenario.

Humor aside my gut has been telling me the Swiss peg is going to have a central role in the EOTWAWKI event since day one. Of course my gut is often wrong. It's fascinating to watch the playoff between the market and the peg, a classic example of the irresistable force vs. the immovable object. Something has to give but what other things get engulfed in the explosion?

Thu, 04/05/2012 - 20:21 | 2320890 Orly
Orly's picture

A Daily chart of the EURCHF cross has looked like the DMZ since about November of last year.  It is doubtless that the big money (and you know to whom I refer...) has been in quiet control of this pair like a trained dog for lo these many months.  It is also obvious that They intend to have their thumb against the trade- in either direction- for the foreseeable future.

From the looks of the move, there was a trap-door momentarily opened and one of their "ghostest wiff da mostest" invisible trading machines went all I, Robot and let himself be known by falling through the floor... or ceiling, as it were.

Something also tells me that there is a computer programmer hitchhiking in the middle of the Gobi Desert right about now wondering whatever happened to his wonderful life.

:/

Addo:

Which reminds me that at the end of last year, on two occasions, the EURCHF also spiked out of the blue and for no (known to me...) reason.  My broker (IBFX- fantastic retail broker...) even killed trades because of it.  Sorry I don't remember the dates but there definitely was the exact same event; a flash within seconds, with the entire trade lasting just about 45 seconds, once up about a hundred pips and once down.

The funny thing was that it was a round trip both times: the trade returned to the exact spot it was trading in before the spikes.

You may ask your friend at the desk if she remembers that, too, and what it may mean.

:)

Fri, 04/06/2012 - 00:11 | 2321308 SAT 800
SAT 800's picture

I should explain that I'm the person who was previously known as "IQ145", but got cancelled; due to being rude to our faithfull leader.

Fri, 04/06/2012 - 00:01 | 2321295 SAT 800
SAT 800's picture

I apologize to you for being wrong about shorting the Euro last year; I was completely and toatlly wrong. FX is very didfficult and normally I avoid it. However, as posted above, I did find great opportunity in Bruce's post where he said he was "holding on to his swissies"; this was obvbiously idiotic, and I did make over $100,000 shorting the Franc. The essence of FX is that there are not methods, esccept the method of the obvious public induced falsity, which must correct itself. In general, other markets are easier; such as the August Feeder Cattle market which just crashed from a nicely deliniated top; or indeed the long bond market which crashed from an obbviously signalled double top at 144. Avoid FX if possible. It's important that you have a futures account; stock market people are hopeless. Cheers.

Fri, 04/06/2012 - 00:09 | 2321304 Orly
Orly's picture

Yeah but it's a hella intellectual challenge.

:D

Fri, 04/06/2012 - 00:13 | 2321311 SAT 800
SAT 800's picture

Are you replying to me? If you are; you should correspond via e-mail. I have a good grasp of the situation, and I would like to share it, I am too lazy to write a book, although that's what I should do. Jaffleck@alohabroadband.com

Thu, 04/05/2012 - 20:11 | 2320889 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

So if cash runs from eur to chf the Swiss will defend the peg, soaking up the eur but at the cost of the chf.

Thu, 04/05/2012 - 20:23 | 2320909 swissaustrian
swissaustrian's picture

They're selling CHF, but not necessarily buying EUR. They are also buying USD, GBP and JPY.

Thu, 04/05/2012 - 20:05 | 2320879 Rainman
Rainman's picture

When the machines aren't satisfied fucking the humans and start fucking each other, you know the end is nesr.

Thu, 04/05/2012 - 19:59 | 2320870 swissaustrian
swissaustrian's picture

Interesting thoughts, Bruce.

The breakout attempt to the mid 1.20s you're talking about was tried once right when the relief rally after the Greek haircut took place. We briefly (6 hours or so) got over 1.21 and then we fell right back to ~ 1.205. It seemed to me back then that this move was a test (i.e intervention) whether or not markets would pick up the trend. They obviously didn't.

To me it looks like the SNB tried to maintain an intervention buffer of about 0.005 CHF (=1.205) for quite a while now. If they want to maintain credibility, they will have to push the CHF at least back there.

Fri, 04/06/2012 - 00:05 | 2321297 SAT 800
SAT 800's picture

There's no point in disucssing this now; the obvious opportunity was when the Swiss Franc was at 1.44 and change, and Bruce stated that he was "holding on to his Swissies"; an obvious piece of stupidity. At the present time; there is nothing that is interesting about this trade. Dont't try to make up opportunities. When an actual opportunity presents itself; your local expert can be relied on to declare, "I'm holding on to my Swissies".

Thu, 04/05/2012 - 19:45 | 2320849 Why Not
Why Not's picture

Swiss will have to go with explicit rather than SNB implicit capital controls Bruce.

Thu, 04/05/2012 - 19:32 | 2320817 disabledvet
disabledvet's picture

I think i found him! I think i found him!
http://www.youtube.com/watch?feature=player_detailpage&v=g53S4zRbo-k
(oh, and sorry for the drunken rage last night folks...phew!

Thu, 04/05/2012 - 19:36 | 2320816 booboo
booboo's picture

Can't wait for Pixar to come out with a movie about a HFT computer named, um, Super Platform Logic Algoritimic Trading or S.P.L.A.T.

Story line: SPLAT is big shot among the other computers until one day a 12 year old autistic child beats SPLAT and caused the entire fucking global derivitive market to implode, SPLAT is tossed into a dumpster behind the Hedge Fund...haha, and then...uh, well nevermind, they shoot the kid and his family, toss the bodies in a wood chipper, maybe not Pixar then, does Quentin Tarantino do animation? 

Thu, 04/05/2012 - 19:21 | 2320802 max2205
max2205's picture

You have to know there are thousands of Soros wantabees out there desperate to hit it big on just this situation.

Fri, 04/06/2012 - 12:20 | 2322354 Zero Govt
Zero Govt's picture

the only possible loser in this situation (trying to turn the currency tide) is the Swiss Bank

...load up, Christmas is early this year

Thu, 04/05/2012 - 19:19 | 2320799 Straying from t...
Straying from the flock's picture

Skynet is aware.

Physical Silver is the END of the banks control over our people.  Worried about confiscation?  Here is a great video that will put your fears to rest:

http://strayingfromtheflock.org/2012/04/05/concerned-about-confiscation/

A dime a day ENDS the game.

Thu, 04/05/2012 - 18:54 | 2320757 LowProfile
LowProfile's picture

Is HFT in the FX space yet? Sure would make it cheaper for the SNB if it was.  Until of course, the fuel and food stops shipping...

Thu, 04/05/2012 - 18:51 | 2320752 LowProfile
LowProfile's picture

Go long CHF, short EUR, equal amounts, lever it 100:1...  Tell all your HF buddies to join in...  And...  SOON...

Fri, 04/06/2012 - 02:34 | 2321414 SAT 800
SAT 800's picture

There's nothing to give probabilities for this trade idea. Is this a joke?

Thu, 04/05/2012 - 17:57 | 2320645 bank guy in Brussels
bank guy in Brussels's picture

With the ECB and EU in a trap where debt monetisation and money-printing - approved even by a kicking and screaming Germany - is the least-worst option, the Swiss franc situation is right at the fulcrum of events.

It is in the mind of many well-off Europeans concerned with asset preservation in these times.

Good to have your ongoing Swiss-savvy perspective as this drama continues these next few months.

Thu, 04/05/2012 - 19:23 | 2320803 LowProfile
LowProfile's picture

 

With the ECB and EU in a trap where debt monetisation and money-printing - approved even by a kicking and screaming Germany - is the least-worst option for the banksters and their toady politicians, the Swiss franc situation is right at the fulcrum of events.

 

It is in the mind of a few dozen trans-national oligarchs concerned with asset preservation in these times.

Fixed it.

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