For the past two days there has been much chatter about Eurchf 2000 peg and its getting louder as we spend more time between 2030 and 2050 with specs patience getting tested like someone waiting for a flight at the airport with a name card in his hand (and the visitor promised him a gift).
My orders are in place and one getting triggered every day so i wan't much concerned regarding outcome much as i have gotta a nice average on entries, stoploss is set and i am doing quit well with the other pairs . But when the huge size of stop loss number came out in the market i started thinking and that's what i have been doing all day today between my trades.
Latest number i heard of stop reported below 2000 were exceeding EUR 20 bio (one number on April 2 was EUR 28 bio) and of stop below being sized EUR 8 bio and i am sure its growing every day as more and buyers are getting in so i will use the figure of 35 bio.
There are two arguments in the market 1) SNB will defend at all costs...2) SNB will defend but they might let the stops get triggered below 2000 first.
While the 2nd idea looks intelligent and outofthebox there's also another angle that i am looking at but first my thoughts on the 2nd idea,
Will SNB betray the trust of speculators who have been buying in front of 2000 and helped SNB defend their peg?
Ofcourse its not like its a wrong thing to do (specs have been hurting SNB for a long time now anyway so dont expect SNB to have a soft corner for them) but the point is if they do that than the next time Eurchf will come back near 2000 after the intervention (and it will) there will not be an orderflow of worth more than EUR35 bio to help them defend it again.
What will SNB achieve by letting the stops trigger below the peg?
Well the arguments are
1) When they will intervene after the stop are wiped out SNB wont have to fill the TP's of specs(buyers above 2000) at like 2400 or where ever the specs had them placed. Which will result in a lower cost of intervention
2) By letting the stops trigger SNB will ofcourse start their intervention below 2000 resulting in a better average position for SNB for what would be obviously higher if start the intervention before the stops get triggered.
Ok these are two valid points But,
Addressing the first point, SNB will have to fill the TP's of specs in any case cause they are gonna start placing buy orders above 2000 (that's what i'd do) the moment eurchf breaks 2000 and get simply picked up when its on the way up (cant get any easier than that).
Second I dont think SNB will able to get too much below 2000... why? cause there wont be enough stops below 2000 to service both sellers TP's and SNB's bids........WHAT ABOUT THE 35 BIO OF STOPS????
Ok lets do some simple logic and math.
The number for stops is EUR35 bio which implies that around same number OF EUR's were bought above 2000 which further implies that in order to break 2000 sellers will have to sell more EUR's than the EUR's are being bought right?
So lets assume that 35 bio EUR's were bought and 36 bio EUR's were sold resulting in 2000 getting breached. Next the sellers will offload their 36 bio EUR's into 35 bio worth of liquidity. So we have 1 bio EUR still left to ofload which will result in quick whipshaw price action and Eurchf will be back above 2000 in minutes.
But that's not all..... actually there were more than 36 bio Eur were sold in order to break 2000. Sellers also had to go through the bids of SNB which are not added into the EUR35 bio (bought) number cause SNB dont have stops below 2000. So there will be more than 1 bio get left to offload.
So i think liquidity will be scarce below 2000 for sellers and if SNB jumps in below 2000 too they are gonna speed up this process and end up with almost same average price.
What will SNB achieve by simply defending the peg?
They will strengthen their credibility, Gain trust of more speculates thus a bigger order flow that will help protect their peg next time.
and implications?
Everyone is talking about the huge stops below 2000 but what nobody is talking about is the stops above 2050.
as i calculated above that if the stops below 2000 and 2020 are worth more than 35 bio than sellers also have to sell more than that amount to break 2000 to hit those stops. Now ofcourse those sellers also have stops too and the way 2050 is being protected i am certain sellers dont want us to go there cause thats the area from which above there stops come into the game.
Now as it turns out this might not be a very expensive intervention for SNB this time.
All they have to do is to throw in a big order that should pop 2050 and starting triggering those stops, when people will see this on charts more buy interest will start to come into market and the game will be over for sellers and i think SNB can offload their long into stops above 2050 and buy interest and book a nice profit.
Considering this scenario it also comes to my mind that maybe they themselves let this rumor free in the market to create such an opportunity?
So why is SNB delaying the intervention than?
1) They could be wating for stops above 2050 to grow bigger and bigger to inflict maximum damage.
2) I heard they sold Volatility (via options ofcourse) so they get paid when market is not volatile to fund the future interventions.
Thats all for now. What i have written above are my personal views, numbers are ofcrouse hypothetical (based on my limited knowledge and schoolboy math) so trade at you own risk.
My orders are in place and one getting triggered every day so i wan't much concerned regarding outcome much as i have gotta a nice average on entries, stoploss is set and i am doing quit well with the other pairs . But when the huge size of stop loss number came out in the market i started thinking and that's what i have been doing all day today between my trades.
Latest number i heard of stop reported below 2000 were exceeding EUR 20 bio (one number on April 2 was EUR 28 bio) and of stop below being sized EUR 8 bio and i am sure its growing every day as more and buyers are getting in so i will use the figure of 35 bio.
There are two arguments in the market 1) SNB will defend at all costs...2) SNB will defend but they might let the stops get triggered below 2000 first.
While the 2nd idea looks intelligent and outofthebox there's also another angle that i am looking at but first my thoughts on the 2nd idea,
Will SNB betray the trust of speculators who have been buying in front of 2000 and helped SNB defend their peg?
Ofcourse its not like its a wrong thing to do (specs have been hurting SNB for a long time now anyway so dont expect SNB to have a soft corner for them) but the point is if they do that than the next time Eurchf will come back near 2000 after the intervention (and it will) there will not be an orderflow of worth more than EUR35 bio to help them defend it again.
What will SNB achieve by letting the stops trigger below the peg?
Well the arguments are
1) When they will intervene after the stop are wiped out SNB wont have to fill the TP's of specs(buyers above 2000) at like 2400 or where ever the specs had them placed. Which will result in a lower cost of intervention
2) By letting the stops trigger SNB will ofcourse start their intervention below 2000 resulting in a better average position for SNB for what would be obviously higher if start the intervention before the stops get triggered.
Ok these are two valid points But,
Addressing the first point, SNB will have to fill the TP's of specs in any case cause they are gonna start placing buy orders above 2000 (that's what i'd do) the moment eurchf breaks 2000 and get simply picked up when its on the way up (cant get any easier than that).
Second I dont think SNB will able to get too much below 2000... why? cause there wont be enough stops below 2000 to service both sellers TP's and SNB's bids........WHAT ABOUT THE 35 BIO OF STOPS????
Ok lets do some simple logic and math.
The number for stops is EUR35 bio which implies that around same number OF EUR's were bought above 2000 which further implies that in order to break 2000 sellers will have to sell more EUR's than the EUR's are being bought right?
So lets assume that 35 bio EUR's were bought and 36 bio EUR's were sold resulting in 2000 getting breached. Next the sellers will offload their 36 bio EUR's into 35 bio worth of liquidity. So we have 1 bio EUR still left to ofload which will result in quick whipshaw price action and Eurchf will be back above 2000 in minutes.
But that's not all..... actually there were more than 36 bio Eur were sold in order to break 2000. Sellers also had to go through the bids of SNB which are not added into the EUR35 bio (bought) number cause SNB dont have stops below 2000. So there will be more than 1 bio get left to offload.
So i think liquidity will be scarce below 2000 for sellers and if SNB jumps in below 2000 too they are gonna speed up this process and end up with almost same average price.
What will SNB achieve by simply defending the peg?
They will strengthen their credibility, Gain trust of more speculates thus a bigger order flow that will help protect their peg next time.
and implications?
Everyone is talking about the huge stops below 2000 but what nobody is talking about is the stops above 2050.
as i calculated above that if the stops below 2000 and 2020 are worth more than 35 bio than sellers also have to sell more than that amount to break 2000 to hit those stops. Now ofcourse those sellers also have stops too and the way 2050 is being protected i am certain sellers dont want us to go there cause thats the area from which above there stops come into the game.
Now as it turns out this might not be a very expensive intervention for SNB this time.
All they have to do is to throw in a big order that should pop 2050 and starting triggering those stops, when people will see this on charts more buy interest will start to come into market and the game will be over for sellers and i think SNB can offload their long into stops above 2050 and buy interest and book a nice profit.
Considering this scenario it also comes to my mind that maybe they themselves let this rumor free in the market to create such an opportunity?
So why is SNB delaying the intervention than?
1) They could be wating for stops above 2050 to grow bigger and bigger to inflict maximum damage.
2) I heard they sold Volatility (via options ofcourse) so they get paid when market is not volatile to fund the future interventions.
Thats all for now. What i have written above are my personal views, numbers are ofcrouse hypothetical (based on my limited knowledge and schoolboy math) so trade at you own risk.
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