Swiss Franc – Will the Levee Break?



The worsening situation in European pushed money to the safety of the Swiss franc, despite the fierce intervention from the SNB, which wants a weaker currency. The floor of 1.20 under EUR/CHF turned into an effective peg, as the SNB just prints more francs to buy more euros.

The Swiss authorities would probably prefer an even weaker franc, as deflation continues to bite, and exports are less attractive. This seems impossible at the moment.

A movement in the other direction has higher chances. How long can the Swiss National Bank buy euros? It might diversify its holdings to other currencies, introduces some kind of capital controls (that has a price as well) or might just give up.

Many traders are betting that they will be able to break the SNB. Up to now, they had no success. A Greek euro-exit or an event of the same magnitude could challenge the Swiss authorities and could accelerate the fall of the euro against other currencies.

There are higher chances that this will not happen in July, with the current peg continuing for another month. Yet it’s important to note that the burden on the SNB is rising.

This article is part of the Forex Monthly Outlook. You can download it by joining the newsletter in the form below, which appears on any article on Forex Crunch.




About

Yohay Elam – Founder, Writer and Editor

I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me.

Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

5 Comments

  1. Alex says:

    If the SNB runs out of domestic currency to buy foreign reserves, it can always print more.

    BTW the USB is the current agent of the CHF peg and they are selling EUROS to AUD, NZD and CAD so the exposure is diversifying.

    They are buying 7M€/minute.

  2. Robert says:

    SNB artificially propping up the EUR is not doing the EU exports any favors, the last thing the EMU needs right now is a strong currency.

  3. Yohay Elam says:

    Thanks guys. The SNB can breath a bit, thanks to Draghi, but the pressure is still on.

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