Euro-Swiss: Risk Going to the Cookie Jar Too Much

The euro is slipping back toward the CHF1.50 level, which has buoyed the euro since the SNB announced its quantitative easing/foreign bond purchases back in March. It held most recently last Thursday, when there were rumors of direct or indirect intervention by the SNB. While in the past we favored buying euros as the lower end of the range was approached, including last week, we are more cautious now. The magnitude of the bounce and the amount of time the SNB bought suggests their current tactics may have reached a point of diminishing returns. We are concerned that officials may decide to change their tactics. One practical way would be to allow the CHF1.50 level to be violated, trigger some stops and then spring the trap and intervene. Initial violation of the CHF1.50 level could quickly see CHF1.4950, with risk extending toward CHF1.49. This is not a fundamental judgment of where euro-swiss should trade. It is not a view of technical conditions. It is a view on SNB tactics, plain and simple.