1. Having watched the 1.08 level closely post-brexit it certainly looks as if there is some FX intervention going on at the 1.08 handle - suspicions enforced even more as SNB President Jordan says FX intervention is on the cards should CHF move even higher/ Rate cut possible another 50bps.
2. Plus EUR vs CHF september rate expectations are skewed for a long EUR carry going forward + already EUR is more attractive than CHF (-0.4% vs -0.75% depo) - 1m CHF Libor currently pricing 25bps at 19% vs 1m EUR libor pricing 25bps at 12%.
3. Volatility is also v low so risk of downside is limitted, plus SNB are clear they will can intervene so the chance of long-term losses with this trade are close to 0.
1. Buy EURCHF on any dips below the 1.08 level, maximum of 100pips TP but much more advisable to take 50 or by looking at the intra day moves even taking 10-20pips is possible several times a day as the market constantly moves higher after ANY dipping below the 1.08 handle.
- i wont be running a stop on this trade given the SNB's commitment and low IV and HV.
SNB abandoned the 1.20 level not too long ago, how does that tie in with your view here...?
QuantumLogicTrading
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they did indeed.. My view here is backed purely by price action and comments from SNB Jordan - if you look on h1 or even m30/m15 you can see the 1.08 level holds almost like there is a ceiling on CHF. Obviously this would be undeclared intervention but central banks/ the SNB DO NOT have to declare any FX positions they take - its quite secret information infact, if it isnt made public (unlike the 1.20 cap was), only the executing brokers S&T team will know and wont be able to disseminate the information. The central bank/ Executing broker is under no pressure to disclose such information if they are/ were intervening is my point so we simply will never know but it looks very odd to me - check it out on the m30, h1, h2 etc - what do you think? even more so as SNB has a history of intervention, so its alot easier to do so now undisclosed.
SNB Jordan has been very dovish recently and has said 1) FX intervention is possible/ on the cards 2) further cuts to the depo rate if necessary to reduce CHF strength - so both of these comments support any long EURCHF positions.
Plus ECB have turned somewhat more hawkish/ neutral as they reach full capactiy in their easing (much like the BOJ) so imo the SNB is more likely to make moves in september than the ECB - the rates market echos this sentiment and SNB President vs ECB president comments also support this (e.g. jordan alot more forth coming about easing/ intervening) - also of late EUR CPI has ticked up to positive from negative for the last 15months so this could be the start of a underlying inflation trend - more good news for ECB.
Anywho, I digress, this trade is/ was a technical 10-50pip recurrent trade which can be made several times a day as from what i see in price action there is some suspected intervention at this level AND i like eurchf topside anyway given the macro environment (some explained above).
laoboss
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The price action certainly is suspicious and I'm with you on this. In a way, intervention that isn't publicized is probably more effective than announcing a floor, although market participants eventually find out.
Where do you see USD playing into this? USD should strengthen medium-term, and a strong dollar, as I understand it, will lead to less appreciation pressure on the CHF.
As always thank you for your superb analysis.
QuantumLogicTrading
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yup, i agree. And like you said, participants find out but they find out alot slower (e.g. we found it only now) AND it is alot more uncertain e.g. they could let it go to 1.05 and noone could complain so by making it non-official it prevents big money flows buying eurchf betting it will get sold as there isnt certaint. However, for us retail level traders i think its a great idea, but just keep an eye out for any reductions in correlation around the level.
Er, im not sure what you mean RE usd? with this particular trade/ dynamics it doesnt have any affect on USD - not that i can see anyway.
What do you mean?
thanks for your compliments and intellectual discussion!
laoboss
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That makes a lot of sense..! re. dollar I understand that when the SNB abandoned the peg the dollar had strengthened considerably since the Fed had ended its QE. This was convenient for the SNB to abandon the peg since a strong dollar allows the US to import more from Switzerland, which is export oriented. The two currencies SNB care the most about are no doubt EUR, followed by the USD. A strong USD would lift pressure off CHF intervention... (am I even making sense?... lol)
QuantumLogicTrading
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Haha im sure you make sense, im just lost as to where this fits in with the EURCHF position? i havent noticed any similar price action in USDCHF... i think usdchf and eurchf move pretty autonomously, apart from the CHF link thats the only real correlation they should share.