"It's Carnage" - Swiss Franc Soars Most Ever After SNB Abandons EURCHF Floor; Macro Hedge Funds Crushed

Tyler Durden's picture

"As if millions of macro hedge funds suddenly cried out in terror and were suddenly silenced"

Over two decades ago, George Soros took on the Bank of England, and won. Just before lunch local time, the Swiss National Bank took on virtually every single macro hedge fund, the vast majority of which were short the Swiss Franc and crushed them, when it announced, first, that it would go further into NIRP, pushing its interest rate on deposit balances even more negative from -0.25% to -0.75%, a move which in itself would have been unprecedented and, second, announcing that the 1.20 EURCHF floor it had instituted in September 2011, the day gold hit its all time nominal high, was no more.

What happened next was truly shock and awe as algo after algo saw their EURCHF 1.1999 stops hit, and moments thereafter the EURCHF pair crashed to less then 0.75, margining out virtually every single long EURCHF position, before finally rebounding to a level just above 1.00, which is where it was trading just before the SNB instituted the currency floor over three years ago.


The SNB press release:

Swiss National Bank discontinues minimum exchange rate and lowers interest rate to –0.75%


Target range moved further into negative territory


The Swiss National Bank (SNB) is discontinuing the minimum exchange rate of CHF 1.20 per euro. At the same time, it is lowering the interest rate on sight deposit account balances that exceed a given exemption threshold by 0.5 percentage points, to ?0.75%. It is moving the target range for the three-month Libor further into negative territory, to between –1.25% and -0.25%, from the current range of between -0.75% and 0.25%.


The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets. This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation.


Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.


The SNB is lowering interest rates significantly to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions. The SNB will continue to take account of the exchange rate situation in formulating its monetary policy in future. If necessary, it will therefore remain active in the foreign exchange market to influence monetary conditions.

The resultant move across all currency pairs has seen the EUR and USD sliding, the USDJPY crashing, and US futures tumbling even as European stocks plunged only to kneejerk higher as markets are in clear turmoil and nobody knows just what is going on right now.

In other asset classes, Treasury yields, understandably plunged across the entire world, and the entire Swiss bond curve left of the 10 Year is now negative, with the On The Run itself threatening to go negative soon as can be seen on the table below:

Crude and other commodities, except gold, are also tumbling, as are most risk assets over concerns what today's epic margin call will mean when the closing bell arrives.

An immediate, and amusing, soundbite came from the CEO of Swatch Nick Hayek who said that "words fail me" at the SNB action: "Today's SNB action is a tsunami for the export industry and for tourism, and finally for the entire country." More from Reuters:

Swatch Group UHR.VX Chief Executive Nick Hayek called the Swiss National Bank's decision to discontinue the minimum exchange rate on the Swiss franc a "tsunami" for the Alpine country and its economy.


"Words fail me! Jordan is not only the name of the SNB president, but also of a river… and today's SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country," Hayek said in an emailed statement on Thursday.


Swiss watchmakers, which are also grappling with weak demand in Asia, are very exposed to moves in the Swiss franc exchange rate because their production costs are largely in Swiss francs, but most of their sales are done abroad.


Shares in Swatch Group fell 15 percent at 1056 GMT, while Richemont CFR.VX was down 14 percent, underperforming a 9 percent drop in the Swiss market index .SSMI following the SNB's announcement. 


"Absolutely shocking ... For companies with international operations – translated earnings are going to be lower and if companies make products in Switzerland it is going to hurt margin. It is a terrible day for corporate Switzerland," Kepler Cheuvreux analyst Jon Cox said

Indeed, in retrospect, it does seem foolhardy that the SNB, whose balance sheet ballooned to record proportions just to defends it currency for over three years would give up so easily. The one silver lining, so to say, is that gold prices in CHF just crashed by some 13%.

Some more soundbites from strategists, none of whom foresaw this stunning move:



"This is extremely violent and totally unexpected, the central bank didn't prepare the market for it. It's sparking panic across all asset classes. It suddenly revives the risk of central bank policy mistakes, right when central bank action is what's keeping equity markets going."



"Major losses in euro-franc trades are causing panic selling and deleveraging across the board."



"My initial reaction was that it is a sign the ECB is about to do something, which makes it odd that the reaction has been so negative across European stocks. However, it's not every day that a central bank pulls the rug out from underneath something in such a massive way, and clearly people are worried that there's something bigger afoot. This kind of event is the kind of thing that will trigger volatility. This is not a one day thing now."



"They’ve stopped defending the 1.20 floor. It’s carnage."



"The decision of the SNB means it no longer needs to buy euro-denominated paper in order to defend the 1.20 position. This should normally weigh on European debt but the SNB also said they will continue to monitor in order to prevent the exchange rate from rising substantially.


"This means that at the end of the day even if they don't defend the 1.20 level, if they want to prevent a collapse of the euro versus the Swiss franc they will probably have to keep on buying, maybe at a lesser extent, euro denominated paper." 




"It has taken the market by complete surprise. The SNB probably expects the ECB to launch QE next week and along with the Greek elections coming up, it would make it pretty tough on the Swiss to keep bidding the euro.


So they have abandoned the cap and cut rates deeper into negative territory. We expect euro/Swiss to trade around 0.90-1.00 francs after all the stop loss orders have been cleared"




"They think too much money is going to come in, especially with QE coming, and so they think they need a 'Plan B'."

"Let it run, let it settle, and we'll see what happens next."

However, the best soundbites today will surely come from US hedge funds which are just waking up to the biggest FX shocker in years, and of course, any retail investors who may have been long the EURCHF, and who are not only facing epic margin calls, but are unable to cover their positions, as one after another retail FX brokerage has commenced "Rubling" the Swissy and the CHF pair is suddenly not available for trading for retail accounts.

To say that today will be interesting, is an understatement.

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Haus-Targaryen's picture


Awesome.  How many of you shitheads on here just lost your bonus because of this?  No new Porsche for you this year.  



I'm off to the Ivory Club to stir the pot.  

ACP's picture

Today's trading is going to be one bitch-ass-shit-tard-butt-fuck-ass-rape hell of a day.

Interns be doin' some ovahtime!

Debtonation's picture

I was watching gold lift-off wondering WTF just happened?  Stuff like this happens only once in a blue moon.  About time the SNB dumps the EUR, just in time for Draghi-QE.

ACP's picture

This is every hedge fund manager in the world today:


Haus-Targaryen's picture

Why did they do this and why now? 


This is the question.  

If the EUR tanks due to QE or the Greeks, then now due to the pair -- the CHF would skyrocket until the SNB came to the rescue and started buying a shitton of EUR and EUR assets with CHFs.  Thus, seems likely that they are anticipating a collapse in EUR value to such an extent that the SNB would not be able to keep up, so they decoupled early.  

My guess is the QE + the Greek problem forced the SNB's hand as they definitely didn't want to do this.  

Haus-Targaryen's picture

Or, the inverse of the equation would be the SNB is expecting an appreciation of the CHF to such an extent that it could not purchase assets fast enough to hold the peg.  

As I sit back and think about this -- I think this would be the scarier option as it has the EUR surviving, but the CHF appreciating at a materially faster rate than the EUR. (E.g., another currency somewhere else in the world ora basket thereof goes to hell and quickly).  

The more I "war game" this, the next few weeks will show us why they did this.  They got a heads up from someone, and decided this is the best thing to do.  I would imagine they have delayed this until the last possible moment.   

ACP's picture

OR...maybe Tina Turner just decided to make a large investment in a shiny yellow metal..?

GetZeeGold's picture



"It's Carnage"


Hot damm......now we're talking.

Gmpx's picture

Can we fix echange rates once and forever? So cheese makers can make cheese...

SumTing Wong's picture

Sell, Mortimer, sell!!!

SWRichmond's picture

FXF still is in my portfolio, knowing this day was coming.

remain calm's picture

Does any of this really matter. I mean I got my Gold. Life in the Rockies is perfect now. If they don't fuck with my porn I should be good

BobPaulson's picture

I think you have to be RBC for her to pick that phone up.

eclectic syncretist's picture

Looks like somebody's central bank doesn't have a mandate for price stability.

Manthong's picture

As a matter of FACTA, there’s nothing much special about Switzerland anymore, except cheese with big holes.

Tao 4 the Show's picture

Gut reaction tells me this not nothing, or in other words, something important is going on. The EUR peg was a clinging to normalcy, an effort to continue the good times that have been threatened off and on since 2001 and especially 2008. Letting this peg go signals that manipulative forces are no longer strong enough to maintain structures of the past. Very doubtful, IMO, that the other forced clinging to economic structures will continue to stand in the coming months.

kliguy38's picture

Not exactly.... the elite have always used the Swiss banks as a place for fiat.....they have to re establish the safety of the franc before they move/park their trillions in the swiss banks......now DONE

Tao 4 the Show's picture

Interesting idea. But can the CHF maintain its "safety" position while Swiss industries lose competitiveness? Will the Swiss become protectionist to prevent imports from wiping out Swiss business? Some kind of interesting rebalance will be required.

Took Red Pill's picture

Swiss stock market down 10% today so far! Self-inflicted. They must have a good reason.

moonshadow's picture

yeah like maybe-cut the cancer out early? or "pay me now or...pay me later"?

rccalhoun's picture

someone has been loading up on derivatives pre-announment--good luck finding out the direct link to GS

saveandsound's picture

The SNB could have bought Euros until the end of time in order to remain the peg at 1.20. As long as the SNB trusted Germany and France that they pay interest and principal on their bonds. At about 500 billion Euros this trust ended.

So they lost 15% on German and France goverment bonds today. And feared they could even loose much more if they continued "stacking" Euro(bonds). There is going to be a debt jubilee. Don't ask me when because I don't know when.

BigJim's picture

Can't wait to hear Yen Cross' take on this.

BigJim's picture

lulz, I've acquired a stalker downvoter!

Some butthurt Zioshill, I expect...

Truthseeker2's picture

The following exposé explains the real background as to both the timing, and the true causes, of the coming collapse. 


2015: The Great Tribulation Of The 3rd Millennium Foreshadowed By The Shemitah Jubilee



Anasteus's picture

This time it was SNB who made a muppet of everyone.

Goldman's Stolper can just turn green with envy.

Squid-puppets a-go-go's picture

i wonder what would have happenned if the SNB dropped the peg and RAISED rates instead

seems to me the bolder move. i mean, fold, sure, but fold in a manner that calls other assholes bluff, y'know?

Never One Roach's picture

Gee, and I thought it was the toast that was burning this morning....

BobPaulson's picture

In other words, close the borders and kill every single industry in your country that relies on selling anything in foreign markets. 

You would need to have a good internal police force.

Fractal Parasite's picture

Why don't the Swiss exporters just lower their prices, and lower their wages, in order to retain market share and maintain profitability in the face of the strong franc? Better than going broke with empty order books, surely.

Son of Loki's picture

"They didn't build that carnage."

Dr. G's picture

That is the fucking funniest comment I've read in a long time.  I loved "Trading Places."

Squid-puppets a-go-go's picture

yer, the dude in the gorilla suit getting thrown in the cage with the real gorilla. hilarious.

kinda like bitcoin investors today.

sorry. hadta

insanelysane's picture

Right now Draghi has someone by the throat and that someone keeps saying (in a raspy voice), "It was the Swiss.  It was the Swiss...."

MalteseFalcon's picture

Will we now be treated to a spate of ZH articles decrying the loss of jobs in the watch-making industry?

GetZeeGold's picture



Who needs a $5000 watch.....when you can pick one up at 7-11 for $3.50?

Karlus's picture

>The .1%


Seriously? $5K wont even get you a Sub.

exi1ed0ne's picture

Coming to a subway near you.

Son of Loki's picture

$3.50 for a watch?  What did you get a Christmas bonus? Don't rub it in and brag like you do.

overmedicatedundersexed's picture

this might be important or not?

"U.S. pension regulators questioned Thursday whether criminal violations in one unit of Credit Suisse Group AG reflect broader compliance problems at the Swiss bank, in an unusual public hearing to vet its request to continue managing retirement plans."

max2205's picture

Negative rates out to 7 years....fiat, good way to feed the fireplace 

csmith's picture

Exactly...my money is so worthless, I have to PAY to give it away.

williambanzai7's picture

Better to get all the blood letting over with at once since the Chinese have stopped buying expensive watches for the time being.

Son of Loki's picture

The Chinese are 99.9% preoccupied with getting their kids into a USA school, wb. Too busy to spend time looking over those Rolexes [or is it "Rolices?"]

DutchR's picture

The Chinese are 99.9% preoccupied with getting their kids into a USA school,




The pinnacle of fucked up is the pinnacle ..........no , please why?