More Thoughts on the SNB

The SNB is believed to have intervened Wed and Thurs in a more aggressive manner than they have since announcing their quantitative easing back in March. It does not appear to have intervened today, leaving many stale long euro/short Swiss franc positions. Many of these positions are in the hands of momentum traders. Without any fresh follow though, momentum traders have begun taking profits today, pushing the cross back toward CHF1.5250-60.

Was the intervention successful? Many observers have claimed the SNB drew a line a in the sand at CHF1.50. That may appear to have been true, but this weeks tactics suggest this is no longer true. The SNB appears to have intervened against the dollar as well in this week's operations. It also appeared to intervene at higher levels. The Swiss franc's trade-weighted-index (BOE version on Bloomberg is ceersz) has fallen this week from a three-month high to a 2 1/2 month low.

Some observers may also consider the intervention successful insofar as it demonstrated the SNB's resolve and enhanced its credibility.

Yet at the same time, as soon as the SNB appeared to step away, the Swiss franc strengthened. This is also what happened back in March. The shock value of the QE announcement then produced a dramatic franc sell-off, which ran out of steam in a matter of days and the euro high near CHF1.5450. Despite the aggressiveness of the recent operations, the SNB was unable to drive the euro back above CHF1.5400.

In addition, the odds of success of intervention tend to be enhanced if it is used to signal a policy change. But in the SNB's case, the intervention itself is the policy. The SNB unlike the Fed, BOE, ECB, and BOJ have not indicated the size of their QE operation. With oil and commodity prices rising, deflationary forces are weakening and the need for an aggressive QE may lessen too in the coming months.

More immediately,today and into early next week, support is seen in the euro near CHF1.5240 and then CHF1.5200. Even if one does not have exposure in the euro-Swiss cross, the implication of this analysis suggest the CHF1.1015-25 may offer formidable resistance to the US dollar. Support for the greenback is seen in the CHF1.0800-20 area. At this point, resistance looks stronger than support.