Traders should be on alert in case the SNB pulls off any surprises again
After the incident on January 2015, you can never say never in markets and there’s always an inkling of doubt when it comes to SNB policy decisions now. It goes to show how much credibility can be hurt just off of one unconventional decision.
With EUR/CHF lurking around the 1.1000 handle now, it is leaving traders in a bit of a pickle with regards to their next trade in the pair.
On the one hand, the franc is gaining on the back of haven flows as the global economy continues to show signs of weakening. On the other, potential SNB intervention and action could just help to push up the pair from current levels as the central bank tries to smooth out the appreciation in the franc.
In my view, with major central banks starting to ease further and potentially see their currencies weaken further, the SNB will eventually choose to act sooner rather than later and the 1.1000 level is arguably a key threshold for them to decide on that.
Among potential options for the central bank is to cut policy rates further into negative territory or perhaps pursue interest rate tiering. But the easier option – and one they haven’t been shy about – for the central bank is to intervene to push down the swissie directly.
The SNB next meets on 19 September but with other major central banks set to communicate their policies well before that and potentially push their respective currencies lower, it does put the Swiss central bank in a bit of a pickle.
Will they just intervene to smooth out the franc appreciation in the mean time before officially communicating more stimulus measures? Or will they pull off another unorthodox surprise again by announcing changes before the policy meeting itself?
Either way, it’s best markets be prepared because as long as the franc threatens to strengthen further, it’s a question of when and not if the SNB will step in.