The Swiss Flex Their Muscles By Intervening In Their Currency Again

Oh the Swiss Central Bank (Swiss National Bank - SNB) is at it again! They are intervening in the currency market by selling their currency (furiously, I might add)!

Early Wednesday morning, the Swiss intervened in the EUR/CHF pair, driving it up about 280 pips so far. That’s a huge move for this currency pair.

Back on March 12^th, the SNB warned that they would intervene and that “policy makers will act to curb any irrational appreciation” (in the Swiss franc).

Take a look at the chart below and you will see what I mean.

800 Pips of Pain to the Short Sellers!

While the intervention was huge, the EUR/CHF pair remained in its larger downtrend. Well, today they are at it again…and they may push this pair past its downtrend line.

Why are they so focused on the EUR/CHF pair? That’s where most of their exports do to (the rest of Europe). They need a high euro to franc exchange rate to help their exporters, so that the Swiss exports are “cheap” from the European’s standpoint.

Last year, the Swiss exports slumped by a whopping 17% and this year they may slump another 2.6% this year (the government estimates). This is huge because exports make up more than ½ of their economy!

During the credit crisis, money ran to the dollar, yen and Swiss franc as a “safety zone”. The Swiss have some of the lowest unemployment in the world, they’re almost never in a war, and they typically carry a huge trade surplus which makes them less reliant upon borrowing from overseas.

However, the Swiss have gotten very concerned over this rapid appreciation of their currency. It’s not only hurt their exports but has caused their economy, as measured by the GDP, to shrink . In fact, their government estimates that it could shrink as much as 2.5% to 3% this year! So you can see why they are hard pressed to do something drastic.

After all, this isn’t the normal protocol for the SNB. In fact, they haven’t intervened in their currency since 1992! So you can see that this is somewhat rare for them.

They really hope to make the EUR/CHF “line in the sand” to be around 1.50 and I’m sure they hope to additionally technically turn around that downtrend by breaking the red downtrend line on the chart. If so, they know that it will cause a lot of hedge funds that are “trend followers” to reverse their positions and it would help their cause.

The Line in the Sand!

By the way, if you want to get an “up close” look at what today’s intervention looks like…just check out the 5 minute chart below. They pushed this pair up about 260 pips in about 1 hour! To give you an idea of how unusual that is…the pair normally trades about 80 pips a day on average!

The Swiss punish those who are short EUR/CHF!

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