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SNB: will it or will it later? An order flow analysis

  • #21
  • Apr 10, 2012 7:14pm Apr 10, 2012 7:14pm
Interesting article.

http://www.dowjones.com/products/djf...apBreaches.asp

Quote
In a familiar refrain, Jordan said the central bank's commitment to prevent the euro from falling under CHF1.20--a policy it has held since September--remains unshakeable, telling reporters that "isolated" doubts over this commitment are "misplaced" as the country battles with export-denting currency strength.

But the central bank has no plans to plug the gaps in its credit lines that played a key role in allowing a slide to CHF1.1990 on dealing system EBS last Thursday.

"We cannot control the franc market completely," Jordan said. "Such...

Quote
Jordan gave no indication that gaps in credit lines will now be filled, pointing out that the SNB already monitors the currency markets during all its opening hours, and accepts more than 100 banks with upwards of 700 trading desks as counterparties.

So that's mean what happened on Thursday can happen again.

Quote
"We have not been impressed by the recent ceiling management," JP Morgan Private Bank's chief currency strategist, Audrey Childe-Freeman, wrote in a note to clients Tuesday, before the SNB's fresh comments. Intervening from time to time around the CHF1.2050-to-CHF1.2175 range would keep market participants "on guard" and bolster the SNB's position, she added.

They are not that dumb honey! not anymore.
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  • #22
  • Apr 11, 2012 2:40pm Apr 11, 2012 2:40pm
Looks like someone's messing around with other traders heads. Moments after announcing the possibility of raising the peg, buyers jumped in and someone collected the profit lol

http://www.forexlive.com/blog/2012/0...raise-the-peg/
  • #23
  • Apr 11, 2012 3:44pm Apr 11, 2012 3:44pm
I think it's incredibly stupid to think the SNB would raise the floor due to mounting pressure on the floor. What will a higher exchange rate do as far as money inflow or spec attacks? Well it provides the "attackers" a better price to sell at, sure maybe it knocks out their existing short positions which they will happily re-establish at a higher price. It gives incoming capital flows a better exchange rate, i.e. more francs for their euros, and is thus more attractive. It means the exchange rate has less to unwind when it does go back to "reflecting fundamentals", and hence less loss on the exchange rate should one not be hedged etc. So in order to defend the new floor the SNB would end up having to buy a lot more at a much worse price, and the only thing they'd get for that would be knocking a few funds' current positions out (which would then get re-established). Also once they raise the floor, what next? When specs start selling it again, what further recourse do they have? It's not like they can keep raising the floor. If they do at some point raise the floor, it won't be due to the current pressure on it.

Also re: "plugging the (credit line) gaps", it's not the SNB's responsibility to make sure every single potential counterparty out there has credit lines with it. If whoever doesn't have those credit lines decides to sell below the floor while the SNB's still on the bid, well they have only themselves to blame when they lose money - because they will lose money. Also now everyone will be aware of this issue and it is (a) unlikely to happen again, and (b) if it does happen people will be aware of it and won't panic sell. It's just the nature of decentralised markets, and DJ are dumb for trying to make it look like the SNB's fault.
  • #24
  • Apr 11, 2012 11:28pm Apr 11, 2012 11:28pm
Quoting eurotrash
Also re: "plugging the (credit line) gaps", it's not the SNB's responsibility to make sure every single potential counterparty out there has credit lines with it. If whoever doesn't have those credit lines decides to sell below the floor while the SNB's still on the bid, well they have only themselves to blame when they lose money - because they will lose money. Also now everyone will be aware of this issue and it is (a) unlikely to happen again, and (b) if it does happen people will be aware of it and won't panic sell. It's just the nature of...
I would agree. . .

I was thinking about this last night after reading on it some more. Now that more info has come to light it looks like the breach was more than likely panic sellers who freaked out or got shit fills on their stops when 25 got gunned. There wasn't much reason to be on the bid that day either. It was a day before a holiday and right after some "negative" news came out. Only 6 banks traded below the number with the SNB remaining on the bid the entire time with all other counter parties. If the banks don't have credit lines with the SNB they probably aren't large enough to cost the SNB much money to get price back over 1.2. Therefore, not really a threat to the SNB since a majority of banks will be unable to execute below the market. So gaming the credit holes is a losing situation.

The SNB has put a lot of emphasis on the fact that they are watching 24/7, even before the the breach happened. IMO they proved just that during this breach. The shock of watching price print below 1.2 and not knowing why is huge physiologically and is no longer a there. I would say 1.2 still holds all the credibility it needs.
Cautiously optimistic. . .
  • #25
  • Apr 12, 2012 12:05am Apr 12, 2012 12:05am
Credit line is an important issue from Central Bank intervention, it's not SNB fault to caught on those circumstances, it's just the way market microstructure work. For remainder, last time on late October 2011 BOJ also lose their credit line while pushing usd/jpy 400 pips from 75.57 to 79.51, only to watch the price back again to previous range.

Obviously aggressive intervention like that will only attracting opposite position to attack, ended up in losing condition to CB with no significant impact on market perception. The best way is to sway participant away by boredom just like SNB does, until fundamental background merge in line with CB's purpose and the price gradually shift.
  • #26
  • Apr 12, 2012 10:26am Apr 12, 2012 10:26am
This is not the first time when the SNB had a "technical glitch":

Quote
It also seems that the SNB did not realize that most banks trading in Asia couldn’t actually deal on the price, because credit limits are assigned locally by region.

As the SNB has not intervened in Asia for ages, if ever at all, few banks in Asia have credit lines programmed in EBS even though they genuinely have big lines.

The result was a temporary two-tier market – those with credit in EBS for the SNB and those without. The rate dealt over 100 times, but for the vast majority of the market, it was not tradable. That won’t please clients...
http://ftalphaville.ft.com/blog/2010...sia-overnight/
  • #27
  • Apr 12, 2012 11:51am Apr 12, 2012 11:51am
I love the comments from FX sources, it's always the same. If they profited, it was an excellent resourceful intervention, if they didn't get a chance or lost on it it was cack-handed move by inept central bankers. I still think 1.2 was breached purely to erase barriers but who knows.

Adal, you wiley trader you, are your vol surfaces from super-derivatives?
  • #28
  • Apr 12, 2012 12:19pm Apr 12, 2012 12:19pm
Quoting triphop
Adal, you wiley trader you, are your vol surfaces from super-derivatives?
Nope, I'm scraping this page: http://www.tradingfloor.com/tools/fx...rsals-pin-risk
  • #29
  • Apr 25, 2012 12:52am Apr 25, 2012 12:52am
Quoting nasir.khan
What happens if SNB never intervenes and just defends the peg?
After some weeks or say a month or so speculators on the bulls side will slowly move out of this pair to free up their margin and reducing the risk of what happened last week.
.......................
Well from what it seems to me the plane could be to just defend 2000 and never intervene to draw out the buyers in anticipation for an intervention and they want same for the bears to who give up on trying to break the peg. So for a bank like SNB what could better...
It worked.

As one trader put it, the EUR/CHF cross seems to sum up what is wrong with foreign-exchange trading these days.

The cross goes nowhere, so it isn’t worth the cost of capital to put on a trade in lieu of something else. This is all because the Swiss National Bank , in an attempt to weaken its currency against the euro, has instituted a floor of CHF1.2000. Though that is far above what the current anti-euro mood would suggest as fair value, the market doesn’t dare challenge the SNB edict, so the pair simply stagnates just above CHF1.2000 and has all but ceased to trade.

http://blogs.wsj.com/marketbeat/2012...raders-lament/
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  • #30
  • Apr 25, 2012 11:24am Apr 25, 2012 11:24am
Indeed, it is kinda frustrating to watch so many CB goes on easing mode, so many paper money flooding around. Even the sovereign player trying to act like a God defending aussie below 1.0300 and euro below 1.3100. My hope only on global economy recovery, when economy warmed up I believe those icy wall of easing policy will melt.
  • #31
  • Apr 25, 2012 4:54pm Apr 25, 2012 4:54pm
Quoting Assassin
Indeed, it is kinda frustrating to watch so many CB goes on easing mode, so many paper money flooding around. Even the sovereign player trying to act like a God defending aussie below 1.0300 and euro below 1.3100. My hope only on global economy recovery, when economy warmed up I believe those icy wall of easing policy will melt.
Yeah those sovereigns are something else. The bane of hedge funds looking to play risk ccys to the downside. Tough for a market to reflect information properly when those who have no interest in playing informatively have more money to push around than the specs.
Cautiously optimistic. . .
  • #32
  • Last Post: Apr 25, 2012 10:15pm Apr 25, 2012 10:15pm
Just like driving Camaro on the sea of mud, horse power is becoming useless
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