Our illustrative chart this morning takes up more room than usual. It is somewhat deeper. This is the only way to convey the enormity of the collapse that took place yesterday in the value of the Euro against the Swiss currency after the Swiss National Bank (SNB) removed the cap it had maintained, by means of market intervention, to prevent the rate falling below 1.20 Euros to the franc (a fall in the EURCHF rate means a stronger Swiss franc, which it was feared would hurt Swiss exports).
The effect on the Foreign Exchange markets was dramatic, across the board. It caused sharp spikes in all other major currencies, and a great many minor ones. Gold and other commodities, as well as equities, were also affected. At a press conference yesterday, the President of the SNB, Thomas Jordan, indicated that the move was designed to be a surprise, in order to prevent irregular speculative trading.
After defending the cap so strongly, for so long, in both word and deed, this move by the SNB is highly significant. It is the best indicator yet that full-blown Quantitative Easing by the European Central Bank (ECB) is only just around the corner. Discussion of some sort may or may not have taken place between the relevant monetary authorities (Switzerland is not in the EU, never mind the Euro area. It is not even a member of the European Economic Area [EEA]), but the SNB will have considerable analytic resources at its disposal, as well as informal contacts in all the appropriate places. If the ECB starts to effectively print money by means of QE, the Swiss would know that a considerable quantity of it will find its way across their borders, making the cap impossible to defend.
OmiCronFX Mandelbrot software timing element saves the day
OmiCronFX’s Mandelbrot algorithmic routine has a timing element built in. Its analysis of previous price action meant that it was not in the market at the time of the Swiss announcement. Therefore we had no exposure to the wild fluctuations that took place after the news arrived at 09:30 GMT, a short time into the London session.
Mandelbrot was due to begin looking for trades after the start of the New York session, around 13:30 GMT. We decided, in the event, that discretion was the better part of valour, and switched it off for the rest of the day.