The options market is pricing in the possibility of EURCHF below parity in 12 months time. The strength of the CHF is a constant concern for the Swiss National Bank keen to defend its export market.
The options pricing chimes with Thomas Jordan’s recent comments that the SNB are making a ‘substantial commitment regarding FX intervention and that they might cut interest rates further. Furthermore, sight deposits for the period ending May 8 showed a big increase.
Now, Thomas Jordan has said that the SNB is not thinking of imposing a new minimum exchange rate. Remember Jan 2015 and what a disaster that was when the SNB gave up defending the EURCHF peg? However, don’t rule out a new minimum exchange rate for EURCHF indefinitely.
Here are some things to look out for that could prompt the SNB to act:
- the pace of currency appreciation in the spot market
- the franc’s real effective exchange rate
- the depth of deflation in the nation (-0.3% is already factored in for 2020 in its bulletin)
- the strength of inflows into the nations assets
One key think to remember, if the SNB do act, or do put in a new minimum level. just don’t over leverage. Remember, there are old traders and there are bold traders. However, there are no old, bold traders.