EURCHF Gone Wild, SNB Starting Rumors?

Source: Flickr Commons (click for site)Things finally got interesting today in the flat line that is otherwise known as the EURCHF. The pair spiked to a high of 1.2074 on reports that.... well, take your pick. We’ve got word of a fat finger trade from a London trader (no, not JP Morgan, spot Forex isn’t their thing). Rumors that Switzerland will apply taxes on Swiss franc denominated deposits to curb demand for the currency (this isn’t a new idea, as the SNB suggested applying negative interest rates in 2011). And of course the last and most basic approach is that the SNB was simply in the market selling francs to stir things up.

Since the initial moves higher, the pair has settled back around 1.2025, which if you were like me and arrived late on the scene, is still a whopping 15 pip move higher (in recent EURCHF terms, 15 pips is like 250 pips of anything else).

For EURCHF Forex traders, the important item to watch is whether the pair will continue to hold above 1.2020 for the next few days. Such an increase of demand ahead of the 1.2000 price floor could indicate that traders are either taking the rumors of negative interest rates seriously. Or,sellers are covering as today’s move has shown that shorting isn’t worth the risks at this time. In such a scenario, we could see the EURCHF continue to trend higher, especially as we near the SNB’s quarterly Interest Rate Meeting on June 14th.

Decision for Forex Brokers

If the SNB does ultimately create a scenario of negative interest rates, it will be interesting to watch what Forex brokers do as a result. Although the SNB is battling demand for francs, retail brokers are actually trying to decrease EURCHF buyers. Retail brokers are currently seeing 90%/10% Long/Short EURCHF ratios as traders are buying just above the SNB’s 1.2000 price floor. This has caused an exposure nightmare for many companies. As such,in addition to simply hedging with third parties, many brokers have cut down the positive rollover rates or removed them altogether for EURCHF buyers.