SNB Sets Minimum Exchange Rate for EUR/CHF - FX Solutions Forex Update

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by: fxsolutions
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Date: Tue, 27 Sep 2011 Time: 11:56 PM
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Tommy Molloy, Market Strategist at FX Solutions (http://www.fxsolutions.com/), provides an overview of currency market activity on 6th September 2011, including his thoughts on the Swiss National Bank's unprecedented minimum exchange rate move.

"The SNB took an unprecedented step today and set a minimum exchange rate for the EUR/CHF at 1.2000. The cross had been trading at around 1.1020 earlier in the session, and it rallied over 10 big figures to 1.2170 ish."

"The EUR buying against the CHF caused a bit of EUR shortage elsewhere and the EUR/USD squeezed over 1.42 briefly as traders scrambled to cover. The move has sent a clear message to the market that the Swiss are not happy with their currency being a safe haven, and though Gold initially sold off sharply on the move, the yellow metal is back near its all time highs. There really are not many alternatives to Gold as a safe haven now."

"It will be interesting to watch USD/JPY now as traders have seen a central bank flexing its muscles and will try to avoid being caught on the wrong side of an intervention move. Many have already started talking about the next safe haven being the USD!"

"Given the immense liquidity in the currency and the vast array of USD denominated assets that exists, there is merit to the suggestion. The next few months will determine how successful the SNB is with its pegging of the CHF to the EUR. Today's work was only the first step in the pegging process. The daily maintenance of that peg will pose a much greater challenge."

"The SNB cannot afford to blink and allow the currency pair to trade below the new lower limit, or they risk incurring the wrath of the speculator market."

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