Breaking the peg ?

Pubblicato il 12 Giugno 2012 da Veronica Baker

Saxo Bank believes that one of the consequences of the Euro-zone (and Greek) drama is that the CHF may suddenly appreciate, causing it to being de-pegged and severely impact traders who have shorted this currency. Apparently Saxo Bank believes that the CHF potentially poses a considerable risk to some of its clients – and I’d say rightfully so.

With the peg of EURCHF at 1.2000 investors have sold CHF and bought EUR for months, both Forwards and in Options. Clients with short CHF exposure could be negatively affected if major turmoil in the euro or euro-zone occurs. Beginning with the Greek elections on 17 June, the Bank anticipates significant political and financial events to take place over the summer. These events may trigger the SNB to de-peg the CHF and this could result in a larger appreciation of CHF.

As a consequence of the potential risk, Saxo Bank will implement the following margin change for CHF (from email sent to clients):

The new margin applies to the first EUR300,000 of FX margin collateral. On collateral above the EUR300,000 the required margin will double. The change is scheduled to happen at 17:00 CET on both 14 and 21 June.
As you might know, we have been relatively sanguine on the CHF and EURCHF 1.2000 peg but the latest developments suggest higher risk of a peg break and a stronger CHF.
The Bank, therefore, recommends reducing all short CHF exposure over the summer period as the tail-risk in both Switzerland and Europe is rising.

My position  ?

I’m long CHF/EUR despite the peg from last month ,and incidentally in this moment 97% of the FX traders are short. I believe  there is insufficient margin in customer accounts to cover their market exposure : too many huge stops immediately below 1.20 , on my opinion.

Saxobank simply is protecting clients saying : stay out !


The Swiss National Bank (SNB) intervened in support of its 1.2000 currency peg against the Euro to the tune of CHF 60 billion ($66B) in the month of May. The vast majority of this intervention occurred during European trading hours. That means that the SNB bought, on average, the equivalent of $7 millions of Euros every minute during the month. That’s a staggering number to me.

Can the SNB continue to intervene at this pace?

Here my answer :  absolutely not.

According to Bruce Krasting , the risks to the country of accumulating reserves at this rate are very high. I have to believe that the US Fed/Treasury, the Bank of Japan and the ECB have been making calls to the SNB and the President of Switzerland to lay off the intervention and the diversification.

The only option left for the Swiss is exchange controls. They will make it very expensive to own Swiss Francs. Negative interest rates (currently -75BP for two months) will get more negative.

In my opinion the odds for exchange controls to be established in Switzerland this weekend are very high. If it is not this weekend, it will be before the end of the month.

P.S.: on my opinion , measures like taxing Swiss franc accounts for non-residents and frustrating the setting up of new accounts in this country are imminent.

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