No Need Of Discussion Of Exit Strategy From EURCHF Floor At This Time

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(CH) SWISS NATIONAL BANK (SNB) LEAVES 3-MONTH LIBOR TARGET RATE UNCHANGED AT 0.00%; AS EXPECTED; Reiterates to enforce cap on EURCHF floor at 1.20

  • 3-month libor target range remains 0.00-0.25%
  • Reiterates that the CHF currency (Franc) is still high and further appreciation would have a serious impact on both prices and the domestic economy.
  • Reiterates ready to take further measures at any time if needed.
  • Reiterates prepared to buy fx in unlimited quantities.
  • Uncertainty about future developments in the Euro Area has again risen.
  • If global activity disappoints, downside risks will again emerge.
  • Imbalances in the domestic residential mortgage and real estate markets increased further last quarter.

(CH) SNB’s Jordan: Expect a significant economic slowdown in Q2; Balance sheet will expand due to enforcing the EURCHF Floor.

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  • Reiterates that CHF currency remains too high even at the 1.2000 floor in cross.
  • No need of discussion of exit strategy from EURCHF floor at this time.
  • Difficult to determine what fair vaule is for the CHF.
  • Central bank can bear balance sheet risks in its currency purchases.
  • Sovereign wealth fund would not help enforce the EUR/CHF cross floor.
  • Confirmed that the SNB had added the South Korea Won currency to its forex portfolio.
  • To evaluate other emerging market investments.
  • Hard to see where currency flows are going but clear financial market pressures are rising since May.
  • Some countries in recent past have had positive experiences with capital controls.

How to interpret these headlines?

Once again the rumor of SNB abandoning the EURCHF floor at 1.2000 has been denied.  Market has been testing SNB’s resolve since last year and it is very likely that we won’t see further gains on the CHF against EUR for the time being… However, other CHF crosses might be a different story as USDCHF may present a strong opportunity for downward moves considering CHF being a safe-haven currency and USD facing increasing pressure on the potential of further quantitative easing… All in all I would be looking to go SELL USDCHF on rallies, especially considering with the current burden on SNB’s balance sheet, it is highly unlikely for the EURCHF floor to be raised soon.

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