SNB intervention definitely a possibility
Firstly let's state the perfectly bleedin' obvious! Do not take any positions based on central bank's fools errands!
Ok, that's out of the way. SNB chief Jordan said the following in a weekend interview with the Neue Zuercher Zeitung:
We are still monitoring the FX markets, and will intervene if necessary
When and where they will intervene is another matter. I cannot imagine that they would be so stupid again as to try and lift the market by force, but they will almost certainly step in, especially in USD/CHF, if prices start falling too far and too fast.
(Original article auf Deutsch)
Position takers beware, it's still a traders market
The extreme volatility of last week may ease somewhat today, with a holiday in the US tonight, but will resurface with the big ECB meeting later in the week. I'd be very wary about running any 'conviction positions' in these market conditions especially if you are on the same side as the rest of the market. We may yet see some further positional adjustments as the fall-out from Thursday continues.
These are the trades I like for the week ahead:
- Gold: Buy dips here is the clearest trade in my opinion and we could see prices up around $1400 pretty quickly if shorts get spooked again;
- USD/JPY: Definite bearish bias here, just need to sit tight and wait for the right entry levels;
- EUR/USD: Bearish bias here also but with positioning at extreme levels, we need to be wary of sharp short-covering spikes;
- AUD/USD: Bullish bias here for me and I think we could see .8400 this week;
- Cable: I've reverted to neutral here in short-term ahead of the BoE.
EUR/CHF: Important information on post SNB price action
For those who are faced with margin calls this morning, it's important to get as much information as possible on how the market traded immediately after the SNB announcement and then make a decision on whether you've been fairly treated by your broker. Once you have agreed on common ground then you can have a sensible discussion on what the next step is.
This all occurred on the main interbank trading platform for EUR/CHF at around 8:30 pm Sydney time yesterday so please take that into account time-wise. There are other platforms also and I do not currently have complete information on what happened there (Edited):
- Prices first traded below 120.00 at 1.1972 at 08:30:48. We cannot be sure of the amounts changing hands;
- Prices traded at Parity, 1.0000, at 08:31:46, so less than 1 minute after the first trade below 1.20.
- Modest liquidity only entered the market after 08:35 when prices were still trading around 1.00.
Information at this point in time is still very sketchy and hard to find.
Longer term JPY positions likely to be tested today
Forget about fundamentals, once the market gets a nasty shock the obvious reaction is to scale back on all open positions and exposure. One of the biggest positions in the market is short JPY and these positions could be tested in today's conditions.
I'm not taking any positions but I'm definitely looking at trading the Yen crosses with a bearish intraday bias. These markets are made for swing traders, not position takers. It would not surprise me at all if USD/JPY were trading below 113.00 before the day is out, after all look where USD/CHF was yesterday!
Watch for more major flows after the NY close and into Tokyo open
Many big global macro players run their strategies off NY closing level prices. Many will be forced into big re-positioning after yesterday's events so we could see massive flows in EUR/CHF, Gold etc.
EUR/CHF has started to dip again in the last few minutes in expectation of these flows.
The JPY crosses will also be very volatile with Japanese investors bailing out so be careful trying to pick bottoms in USD/JPY today.
EUR crosses (ex CHF) to stay heavily bearish
I would avoid EUR/CHF at all costs in coming weeks unless totally necessary as we are going to see too much volatility. We are likely to see intervention of some sort and plenty of jaw-boning.
But the flight out of EUR is only likely to pick up more steam and I'd be looking for some less volatile crosses to play, like EUR/AUD, EUR/CAD and the old favourite EUR/GBP. I'm not getting fixated on exact levels in these market conditions, and it becomes a matter of waiting for opportunities.
The other trade I really like is long Gold, again its a matter of picking the correct entry levels and keeping exposure at a manageable level.
Brokers will revisit CHF trades, clients may suffer
Reuters are reporting that big retail FX brokers like Saxo Bank will "potentially set different rates for transactions conducted after the SNB move yesterday".
"Once we are better able to establish the market liquidity,
all executed fills will be revisited and amended to more
accurate levels," Saxo Bank said in a statement. "This may
result in a worse execution rate than the originally filled
level."
EBS confirms market low dealt at 0.8500 in EUR/CHF
From Reuters:
The market low for the euro
against the Swiss franc on leading currency trading platform EBS
was 0.8500 francs and a price quote at 0.0015 was a "miss-hit",
the company said on Thursday.
The Swiss National Bank shocked markets by abandoning its
three-year old cap at 1.20 francs per euro on
Thursday, sending the the single currency plunging by as much as
30 percent against the Swiss franc, before recovering a little
to trade at 1.0290, still down over 14 percent on the day.
"As a result of the Swiss National Bank announcement that it
has discontinued its minimum exchange rate, EBS Market
experienced significant volatility in EUR/CHF," a spokeswoman
for ICAP - EBS's parent company - said in a statement.
EBS is one of the main venues for banks and other major
players trading the dollar, euro, yen and Swiss franc.
"A miss-hit occurred resulting in a market low being
published. This has been confirmed and the counterparties on
both sides of the trade are in contact," the spokeswoman added,
referring to a price quote at 0.0015 francs per euro.
Cable: Swing trading with a bullish bias
I'm hoping to exit longs near 1.5325/30 (where I hear there are some sell orders positioned) and look to re-load on dips from there.
What are the next big positions at risk
That's the question I'm asking myself after the rout in EUR/CHF. There will be absolute horror stories to emerge from the market and that usually means that other positions get culled to pay for the bad ones.
Let's put it this way, I wouldn't be short AUD, CAD or Gold for the next few sessions!
System problems post-SNB adding to confusion
"After the SNB announcement with regards to their floor in EURCHF there have been significant issues with regards to the level at which orders have been actually transacted as opposed to the communication by system-generated confirmations. This also applies to all USDCHF and all other CHF crosses." -Bank communication via the FXWW Chatroom
Looks like there will be a lot of stewards enquiries into exactly where trades were executed.
SNB decision: Might be good time to consider Gold longs
Gold and the CHF have always had a close relationship and the removal of the peg and subsequent massive move higher in the CHF should see the Gold price start to speed up.
AUD higher after very strong employment data
The Australian economy added 37,400 jobs and the unemployment rate dropped to 6.1% with a slightly improved participation rate. Very strong data indeed and the AUD/USD has jumped back to 82 cents from .8145 just prior.
EUR still looking bearish on the crosses; sell EUR/USD rallies
- EUR/JPY has been leading the way this week, falling almost 400 pips from highs to lows. More to come I suspect and I expect to see 135.00 early next week.
- EUR/GBP is threatening to close below .7760 on a weekly basis, which would be a technically bearish event.
What does this mean for EUR/USD? The break below 1.1750 failed to generate fresh momentum so we might see some short-term short-covering kick in, especially if cable takes on a bid tone for a few sessions. But, I'd be looking to sell into that rally in EUR/USD, perhaps around 1.1875ish?
USD/JPY: No strong ideas today
Many of the big stops, that we've been talking about for the last 2 days, were done overnight and a 250 pip fall was certainly a significant event. I'm really not sure what to do today during Asian trade, with prices sitting mid-range at 117.25. My shortish-term bias is still bearish but current levels aren't that attractive. Maybe wait in hope of a squeeze back towards 118.00 and sell into that rally for the next 200 pip dip?
Cable: Playing from long side for now
There are still plenty of very bearish recommendations coming from the big banks but the price action to me looks moderately 'bottomy' and I'm happy to play from the long side now and will maintain this whilst prices stay above 1.5150.
If we can break back above 1.5300 significantly, then we should see a fairly swift move towards 1.5550 if/when the shorts get scared.
Much of what happens during Asian trade will depend on the JPY crosses but if cable is still trading at current levels when Europe opens, then I'll be more comfortable with my long position.