Continuing from the previous post on SNB,
Now the question i have is why SNB's is not doing what is was expected to do and why its doing what its doing.
and the conclusion i am reaching is that,
What happens if SNB never intervenes and just defends the peg?
After some weeks or say a month or so speculators on the bulls side will slowly move out of this pair to free up their margin and reducing the risk of what happened last week.
from the bulls side,
negative in this case of course is that's gonna generate more sell orderflow for SNB to hold back but positive's are that Stops below will start to get lightened and WHEN/IF SNB ever intervene they wont have to fill bulls TP's.
from the bears side,
Well with bulls moving out it will seem easier than before to break 2000 but also there wont be that much liquidity (stops) below the level too. Now people who are selling Echf are not like retail traders they have got balls, bills and brains on their side so they wont give up that much easily. I dont know whats gonna happen here cause i cant say how long SNB will have to hold 2000 before bears give up on it.
SNB,
Well from what it seems to me the plane could be to just defend 2000 and never intervene to draw out the buyers in anticipation for an intervention and they want same for the bears to who give up on trying to break the peg. So for a bank like SNB what could better than a currency which Specs dont wanna touch.
What SNB also can do from time to time is to spike it up like 30-70 pips every now than to further damage the bears confidence.
In between SNB could sell the Volatile option to help them generate money to fund the interventions though money is not big problem for SNB as they going through some deflationary cycles (so can print). Also there not just holding the riskt euro in their reserves they keep re-balancing buy selling the like's of Eurusd and Eurgbp.
Now the question i have is why SNB's is not doing what is was expected to do and why its doing what its doing.
and the conclusion i am reaching is that,
What happens if SNB never intervenes and just defends the peg?
After some weeks or say a month or so speculators on the bulls side will slowly move out of this pair to free up their margin and reducing the risk of what happened last week.
from the bulls side,
negative in this case of course is that's gonna generate more sell orderflow for SNB to hold back but positive's are that Stops below will start to get lightened and WHEN/IF SNB ever intervene they wont have to fill bulls TP's.
from the bears side,
Well with bulls moving out it will seem easier than before to break 2000 but also there wont be that much liquidity (stops) below the level too. Now people who are selling Echf are not like retail traders they have got balls, bills and brains on their side so they wont give up that much easily. I dont know whats gonna happen here cause i cant say how long SNB will have to hold 2000 before bears give up on it.
SNB,
Well from what it seems to me the plane could be to just defend 2000 and never intervene to draw out the buyers in anticipation for an intervention and they want same for the bears to who give up on trying to break the peg. So for a bank like SNB what could better than a currency which Specs dont wanna touch.
What SNB also can do from time to time is to spike it up like 30-70 pips every now than to further damage the bears confidence.
In between SNB could sell the Volatile option to help them generate money to fund the interventions though money is not big problem for SNB as they going through some deflationary cycles (so can print). Also there not just holding the riskt euro in their reserves they keep re-balancing buy selling the like's of Eurusd and Eurgbp.
.
I basically agree with you. I add that SNB does not consider 1,20 to be a "fair" price, and would aim at 1,30/1,40 in the medium term. So, if they can get rid of Specs, they basically can try another intervention (if market does not spontaneously go towards the "fair" value - in their view).
ReplyDeleteThe government could also apply fiscal penalties on ingoing capitals, but does this really impact on exchange rate?
The big force to fight here are the big bear guys. For how long are they going to keep interest live on this rate?
Another way could be a decrease of interest rate in Europe? For sure it would reduce swap interest for EURCHF, but that would be the start of a new fresh interest in "risk"? Able to offset the fear of a european collapse?
What I really think is that bears here are not acting by fear, they're just challenging SNB to prove who's stronger.
If they do another intervention and move the peg to 1.4, that would again get specs interested in it and with more interest and firepower as echf will moved further away from its fair value so a bigger reward if they could break the SNB's peg. So i dont think its a good option.
ReplyDeleteBig boys have big egos but not to a point of stupidity, just imagine the negative swap those big short are conceding now.
I think they only way for SNB is to just hold the 2000 line and hope that Europe gets it act together. So Euro could post a recovery across the board (but will it effect Echf as its already over valued? discussion for an another time huh?).