The Bizarro EURCHF in April and May 2010

http://www.forexfactory.com/attachme...7&d=1276203287

Anyone care to deconstruct the behavior of the EURCHF during April and May? In particular, the near straight line through April is quite remarkable and begs explanation. (click on image to enlarge)

Appears it all started on April Fools Day with a 266 pip bungee jump. After that it sort of became magnetized to the 1.4325 support level where it lived with little change for just over a month. Then it just fell off a 300-pip cliff, climbed all the way back up, fell all the way down again to the foothills of support at the 1.4005 level. It gave up climbing and instead spent a week building a jet pack that it then used to rocket back up the face of the cliff but didn't quite make it. Barely hanging on--fingers of one hand clinging to the ledge--it got the reserve fuel tank attached to the jet pack and blasted off again, soaring up into the air above the 1.4325 mesa. And with with the help of a little bit of arm flapping, it made it almost to the early March clouds before sputtering. Slipping below the magic mesa, somehow it still managed to hover above the foothills until the end of May, making one last stab at the now spiteful 1.4325 before burning out, thudding down the bluffs, bouncing a couple of times across the foothills, and tumbling down into the ravine.

Hard to believe but it really is a fundamental issue of currency flows. Once the Euro crisis started a lot of European based entities moved their holdings into the swiss franc (CHF). This off course causes a major issue for Swiss based companies and their competitiveness and so the SNB steps in and attempts to correct any perceived misalignment.

I realize that most people think that the Euro is dumped for the USD but the CHF is also a large recipient of the flow.

This same thing happens with GBPCHF as well.

There was an article about this exact topic a week or so ago in the Financial Times i believe.

Chart explanation?

INTERVENTION, INTERVENTION, INTERVENTION and MORE INTERVENTION.

Draw a line at 1.4000 and be amazed at how hard they tried to defend that level.

http://ftalphaville.ft.com/blog/2010...on-in-context/
http://www.zerohedge.com/article/jpm...chf-125-target

We would need to check my records a little more careful but we suspect the SNB has set a new world record with its FX intervention in May. Data released by the Swiss Statistics Office and confirmed to us by the SNB puts intervention at CHF 78.8bn in May (yes, that is the change of reserves, not their level). To put this into perspective, this is nearly three times the previous largest monthly intervention and amounts to 15% of GDP in just one month.

..

The chart of EUR/CHF looks bizarre if you are attempting to explain the markets move through the traditional technical analysis methods. Trying to do that through moving averages, macd's and stuff is very weird on a EUR/CHF due to the extraordinary intervention efforts by the Swiss National Bank (SNB)

However if you approach the EUR/CHF market from an order flow, information flow, market sentiment and liquidity viewpoint, then it is possible to explain to yourself better why price did what it did and therefore all sorts of opportunities can jump out at you.

As far as a fundamental and market sentiment viewpoint, EUR/CHF is fundamentally, structurally, sentimentally bearish. This means there are usually a ton of macro related offers with speculator offers giving you a very strong 'sell on rally' mentality. Combine that with the weakness in the EUR a lot of capital wants to flow our of EUR and into CHF, but the SNB doesn't want massive inflows into their country for their own reasons.

The SNB intervened on Feb 5th going on the offensive and aggressively bidding up the market within a short time frame. The speculator community sees this and scrambles to cover their shorts. With the SNB on the aggressive bid they are consuming many of the offers in the market, as well as stops getting tripped on the way up. There isn't enough liquidity for all of them so price shoots up quickly to a liquidity point with enough macro sellers to consume the buying interest. Eventually the move dies out and slowly the macro sellers come back into the market and price drifts down to pre intervention levels.

The SNB was on the bid at 1.4600 propping up the price there from Feb 5 - March 12. The only people on the bid were the SNB, any hedgers, and people covering their shorts scared of another SNB intervention. The market WANTS to go lower(see sentiment above), but if the SNB is bidding yards and yards the market is not going to try to run through the wall of bids. Eventually the SNB decides it had enough euros at 1.46's and pulls their bids at that level. When that happens and the market realizes it as they are plugged into the institutional platforms and order/information flow, the market guns below the 1.4600 level where everyone and their uncle has been placing a sell stop which have been accumulating there since feb 5th.

Same thing happened between April 2 - may 6th. SNB is the only one propping up price at 1.4320. Noone else wants to touch the bid at 1.4320 except for SNB bids and profit taking short interest. Sell stops accumulated below 1.4320 and 1.4300. Once they pull their bids the whole sell stops get tripped into a low liquidity environment resulting in a 70 pip move in minutes. NOone wants to be on the buy side except for some corporate hedging interest, and sporadic short covering order flow, which is just not enough liquidity to handle the sell stops getting tripped.

Eventually after a few hundred pips short covering interest and threat of further SNB intervention encourages some profit taking to kick in and prices bottom out at 1.4000 temporarily. Prices come back to retest the 1.4320 breakout point where the macro and spec sell into that rally and can kick the price down again.

I could write my comments on the May 19-21 and June 4th events which are similar to the above, but I hope I gave you some ideas to think about.

I second that! SNB Intervention all the way.
If you're looking at trading this pair with indicators, you'll more likely lose money. Price action and fundamental trading has been the best way to trade this pair. Pair has been down since 2007, so if you continue to look for opportunity to short, you'll be successful. E/C is a really nice pair to trade if you know how to trade using price and fundies.

http://video.ft.com/v/91034500001/Ju...-buying-spree-
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First thanks to grkfx for writing this amazing post of how the whole SNB intervention thing works, I wanted to take advantage of the situation but the "SNB intervention" scared me away and confused me, but I understand everything better now I think.

The other thing that makes me think is the "institutional platforms and order/information flow", without it retail traders are in great disadvantage and makes me wonder, how could I get access to that ...

And for those that are using only technical analysis and are not successful, the EUR/CHF is great example that to be a better trader you need to understand the fundamentals and market sentiment, you need to stop staring at the chart so much and start gathering information outside the chart and try to understand what is moving the price.

Thanks for the great and immensely helpful responses, everyone.

Now what about the big sudden swings? 300 pips down on May 6. 585 pips up and down May 19 to 21. Who do you suppose were the biggest winners and losers in that mayhem and the drop that followed?

for swings of the 6 it seam to be due to the japan central bank ,but it's something i have no source for ,i have juste heard that by somebody (who is not far from the snb),but like he also talk about the level protection i think it could be right .

Here are some of my comments on the current situation in EUR/CHF.

Market tripped sizable stops above 1.4000. This cleared the market out of any weak shorts. Price fell back below 1.4000 and you get a daily pin bar form off a price pivot(1.4000) for any of you price action traders. Head and shoulders forms and the market breaks lower below 1.3910 triggering the pattern for any of you chart pattern followers.

There was another event that happened which didn't appear on the charts. On June 15th there were rumours that the SNB may be willing to allow more CHF strength. Rumors vary and some state that 1.3700 is the level they are willing to tolerate, other rumors put it at 1.3000. Anyways, once the rumors came out this brought in some more macro sellers that were sitting on the sidelines scared of SNB intervention.

The key event risk is the SNB Monetary Policy Assessment on Thursday. The market is expecting them to maintain their expansionary monetary policy. But with the current rumor a certain percent of the market is pricing in that they may change their language on Swiss franc excessive appreciation.

The current language states that "It will act decisively to prevent an excessive appreciation of the Swiss franc against the euro."

If they leave the statement the same then those market participants that sold eur/chf and usd/chf on the expectation that the SNB may allow more CHF gains may buy back their short trades.

If they change the statement to say something like "It will allow more Swiss France gains, but still intervene from time to time to smooth the market movements." I am not sure how they could word it but wording it in such a way to show a softening of their position. If that happens then the rest of the market participants that didn't believe the rumor will now need to reevaluate and potentially short eur/chf and usd/chf, to take into account the fact that SNB intervention will be more limited going forward.

The other risk in the monetary policy assessment is if they change their assessment and indicate that the SNB will begin to remove it's expansionary monetary policy(aka begin hiking rates). Such a change in wording can be CHF bullish meaning, usd/chf and eur/chf can be under pressure to go down.

SNB was last rumored to be on the bid at 1.3750. Stops have in the meantime have been building below 1.3750, 1.3730 and 1.3700


Enjoy!

Spot on, nothing better than having a plan in place for the possible outcomes and reacting according to it.

* SNB omits pledge to fight excessive franc rise decisively
* SNB keeps rate target at 0.25 percent, as expected
* Ups 2010 growth fcst to "around 2 percent"
* Says deflation risks gone, eyes 3 pct inflation by 2013