What does the SNB know about ECB QE?

Nobody expects the Spanish Inquisition or the Swiss National Bank. The removal of the 1.20 floor under EUR/CHF was a huge shock that sent EUR/USD temporarily below 1.16, the franc surging across the bonds and even sent Swiss crosses off brokers’ systems.

We are one week away from the all-important ECB decision that will probably introduce  QE as Draghi’s determined words have shown. Markets expect a 500 billion euro program and that has already weakened the euro. Does the SNB know about an even bigger program? There is something  interesting in the SNB’s statement.

The SNB already introduced negative rates to battle the inflow of Russian money into Switzerland. It has now set even lower rates and it’s safe to assume Russian money continues flowing.

But the euro-zone is much bigger than Russia and its impact is probably bigger.

We can certainly imagine the case that the  SNB is anticipating a huge program that would  weaken the euro so much  that it could make defending the cap  beyond impossible.

What can the ECB do?  It can skip the  initial QE programs from the US and the ones from the UK and the BOJ and head directly to a QE3 style program – a program to buy bonds on a monthly basis without a pre-determined price limit.

This is merely a speculation, but after the  EUR/CHF has been seen as long lasting since 2011 has been removed, anything is possible.

The SNB expects the divergences between monetary policies to become even more pronounced.

Here is a quote from the SNB’s statement that refers to  the divergence of monetary policies.  Bolding mine:

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.

 

More:  5 Most Predictable Currency Pairs- Q1 2015

Here is a quote from the SNB’s statement that refers to  the divergence of monetary policies:

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.

More:

• SNB move in ECB context – Reactions To SNB Move – JP Morgan, Deutsche Bank, SEB
• SNB governor: Cap end was not a panic move but needed to be a surprise
• SNB Action Hints At A Steady EUR/USD Drop From Here – Danske
• Even more:  3 hints from the SNB that ECB QE is going to be really big
• EUR/USD falls to the lowest since November 2003 – guide to the next big levels