16 Jan 2015
Uncertain period ahead as the market adjusts to new dynamics – Investec
FXStreet (Barcelona) - The Investec Team notes that the future implications surrounding SNB’s decision to let go of its EUR/CHF floor suggest that the Swiss Franc and the G7 currencies might experience heavy volatility as markets adjust to the readjustment.
Key Quotes
“Due to huge safe haven inflows into the Swiss Franc, whether due to commodity falls, reduced global growth outlooks, or Russian sanctioned money looking for a safer home than the volatile and depreciating Ruble, the SNB had been heavily intervening in previous weeks to protect the 1.2000 floor and perhaps these pressures were too great to sustain.”
“Additionally, the SNB may have come to the conclusion after recent speeches from ECB Chief Mario Draghi that the ECB will begin wide scale QE next Thursday, and with it bring huge selling pressure to the Euro. Perhaps it was better to allow Euro-Swiss to move lower by their choice than by being overloaded with selling volume next week.”
“Conspiracy theories are rife among analysts, but whatever the reason we now have new dynamics in the market. The Swiss Franc is moving freely with Euro-Swiss some 20% lower this morning.”
“The SNB is no longer intervening so the need to diversify its currency reserves by selling Euro-crosses may disappear in the short term. In the medium term the SNB have enormous foreign currency and asset holdings from previous intervention and will likely want to reduce these at some point. All things seem to point to a very volatile time for the Franc and the G7 currencies as we go through a readjustment period.”
Key Quotes
“Due to huge safe haven inflows into the Swiss Franc, whether due to commodity falls, reduced global growth outlooks, or Russian sanctioned money looking for a safer home than the volatile and depreciating Ruble, the SNB had been heavily intervening in previous weeks to protect the 1.2000 floor and perhaps these pressures were too great to sustain.”
“Additionally, the SNB may have come to the conclusion after recent speeches from ECB Chief Mario Draghi that the ECB will begin wide scale QE next Thursday, and with it bring huge selling pressure to the Euro. Perhaps it was better to allow Euro-Swiss to move lower by their choice than by being overloaded with selling volume next week.”
“Conspiracy theories are rife among analysts, but whatever the reason we now have new dynamics in the market. The Swiss Franc is moving freely with Euro-Swiss some 20% lower this morning.”
“The SNB is no longer intervening so the need to diversify its currency reserves by selling Euro-crosses may disappear in the short term. In the medium term the SNB have enormous foreign currency and asset holdings from previous intervention and will likely want to reduce these at some point. All things seem to point to a very volatile time for the Franc and the G7 currencies as we go through a readjustment period.”