Currency Intervention Part 2: Swiss National Bank at it Again

Last updated 6/24/2009 9:21 AM ET (GMT -5) 9 Comments

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Kathy Lien

Director of Currency Research, GFT

The Swiss National Bank is in the markets this morning buying both EUR/CHF and USD/CHF.  No matter what the central bank has said about not focusing on a "fixed threshold," 1.50 is the line in the sand.  EUR/CHF fell to a low of 1.5007 on Tuesday evening, ringing alarm bells throughout the SNB.   This is the third time since March that the central bank has intervened, but what sets today's selling of Francs apart from previous intervention is that they are buying both dollars and euros.  They have loaded up on EUR/CHF exposure over the past 4 months and therefore concentrated their efforts today on buying USD/CHF (take a look at the parabolic move in USD/CHF versus EUR/CHF in the charts below). Although many other central banks including the Bank of Canada and the Reserve Banks of Australia and New Zealand have expressed frustration with the strength of their currencies, none of them have the conviction of the SNB.  

As we mentioned last week after the SNB's interest rate decision , "with the central bank creating an artificial floor under EUR/CHF,   any move back towards 1.50 could provide a good risk to reward opportunity." We continue to believe that this will hold true as no one will want to fade the deep pockets of the Swiss National Bank.

Intraday Chart of USD/CHF

Intraday Chart of EUR/CHF& nbsp;

June 18 EUR/CHF

March 12 EUR/CHF

Comments (9)

peyton

June 24, 2009 at 09:40 AM ET

finally been waiting awhile for this one. i don't understand since risk aversion is taking hold of the markets again, why would $chf plunge like $jpy. Seems to me that $ is more of a safe haven than chf. Must be general broad $ weakness I assume.

klien

June 24, 2009 at 11:45 AM ET

USD/CHF is not plunging. It had a spectacular rally today and is simply "retracing" some of those gains after hitting its weekly high

d

June 24, 2009 at 01:26 PM ET

I am not intending that you are recommending a trade but am getting lost in what you intend to buy and what you intend to sell in the suggested trade.

You say no one will want to fade the swiss national bank I take that as selling CHF at the "line in the sand". So are you suggesting to buy CHF on strength and sell as the price retreats to near the "line in the sand"?

klien

June 24, 2009 at 01:28 PM ET

Since the SNB meeting last week I have said that a retreat towards the 1.50 level creates a good risk to reward long opportunity

intent

June 24, 2009 at 02:47 PM ET

where would you say that "line in the sand" exists in UsdChf?

klien

June 24, 2009 at 03:51 PM ET

Unfortunately no. Switzerland does the majority of its trades with members of the European Union

d

June 24, 2009 at 04:42 PM ET

I have been studying your book. I am expect that if I will be up to speed one day. Until then maybe a few dumb question...

ChrisEccles

July 23, 2009 at 03:45 AM ET

Hi Kathy
Whilst I agree that Switzerland would be the most concerned about its Franc against
the Euro (and the glaringly obvious interventions of Roth's bank serve to prove this),
there does also seem to be a pattern in USDCHF, although a little more subtle.

Big tourism flows exist between the US and Switzerland and one could imagine there
being concern for the impact on this major source of Swiss income if the Dollar were to
become seriously undervalued in CHF. On June 5th and June 26th this year, there
were noticeable inklings of a "line in the sand" kind of activity of the sort pointed up in
your article re EURCHF. We saw 350 and 400 pips of quite rapid Dollar recovery on
both those days, just after the pair moved under the 1.0650/70 region.

A standing order to go long the pair around 1.0665 with targets around 1.0850 might
make a great deal of sense. Stop around the 2009 low of 1.0590 seems safe.

What is your view, Kathy.
Am I seeing phantoms that aren't there ?

Best wishes

Chris

klien

July 23, 2009 at 05:39 PM ET

When intervening in the Franc, I think that the SNB buys both EUR and USD. The last time they intervened, we saw a sharp rally in USD/CHF. I can't comment about your strategy directly, but so far the 1.06-1.10 range has held well

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.