EUR/CHF Big Trade – Stopped at 1.1908 for -100 (THATS WHY WE USE STOPS!!)

BK EUR/CHF Big Trade – FYI Stopped at 1.1908 for -100 (THATS WHY WE USE STOPS!!)

EUR/CHF Big Trade – Betting Against SNB Will Get You a Bloody Nose

The Trade:

Buy EUR/CHF

Buy 2 lots EUR/CHF at market (now 1.2009)

Stop on the entire position at 1.1920

Risk on our BIG TRADES is large, so make sure your position is small.

We will manage the take profit dynamically and send out alerts on when to take profit and/or move your stop.

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Central banks have deep pockets and a lot of money to throw around but when they are fighting against market forces, they face an uphill battle that they end up losing more than winning. However there is one central bank that exemplifies the success that all central banks hope to achieve when they try to weaken their currencies and that is the Swiss National Bank (SNB).

If there is one thing that the Swiss are known for it is their accuracy and precision. Since 2011, the Swiss National Bank has effectively maintained a 1.20 EUR/CHF floor. When they introduced the peg 3 years ago, they pledged to buy an “unlimited” amount of EUR/CHF and they came in again and again to show the market to illustrate their utmost commitment.

However over the last year, they have allowed EUR/CHF to trade near 1.20 and even touch it on a few occasions, leading many traders to wonder if they will continue to defend the peg. We believe that fighting the SNB will get you nothing but a bloody nose. 1.20 may break and EUR/CHF could drop to 1.1980 but we expect the SNB to sweep in quickly and aggressively if that happens.

The Swiss Have Already Been Intervening

In fact, they have already been intervening. According to a report released last month, the SNB intervened in size to defend the 1.20 floor with their reserves rising to CHF495.1 bln (~$490.2 bln) from CHF462.7 bln in November. The only difference is that they have been scaling in rather than flooding the market at one time that led to some of the sharp spikes we saw in 2012. To illustrate their commitment to making the Franc less attractive, they also dropped interest rates to negative levels. If they let 1.20 break in a meaningful way without intervention, they are risking the credibility of their currency and monetary policy. Also with commodity prices putting downside pressure on inflation, the SNB desperately needs to strengthen their currency.

Switzerland’s Strength is Also Their Greatest Weakness

Nonetheless it is important to understand why the SNB has chosen a more passive and quiet route. Switzerland’s strength as a safe haven is also their greatest weakness. Money flooded into Switzerland during the Russian and Greek economic and political crisis and remains parked there amidst the risk of ECB Quantitative Easing.

However the SNB’s plans to start negative rates on the same day as the next ECB meeting is NOT a coincidence. The move is clearly intended to act as a buffer against EUR/CHF selling if the ECB announces QE. In fact we would not rule out a one-two punch by the SNB if the ECB starts buying sovereign bonds. It all boils down to timing.

The SNB could be holding off on overt intervention until the ECB announces QE because they know how eagerly investors are anticipating this move. The Swiss can print as many francs as they like to defend the 1.20 EUR/CHF floor.

Buying EUR/CHF is a Low Risk Trade

Given how close EUR/CHF is to 1.20, buying EUR/CHF at current levels is also a low risk big trade.

Buy EUR/CHF

Buy 2 lots EUR/CHF at market (now 1.2009)

Stop on the entire position at 1.1920

Risk on our BIG TRADES is large, so make sure your position is small.

We will manage the take profit dynamically and send out alerts on when to take profit and/or move your stop.

Swing

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