Did I mention yesterday about the ride getting bumpier and traders wary of SNB (Swiss National Bank) intervention on the Swiss Franc? I sure did, but this morning's decision to fix EURCHF at 1.20, an instant leap of over 1000 pips, (and 1000 pips on GBPCHF too!) has caused chaos and mayhem across the board and hence my late delivery of today's update. I had to tear it up and start again!

The SNB have set a minimum exchange rate of 1.200 for EURCHF and say they will enforce this with the utmost determination and are prepared to buy foreign currency in unlimited quantities. Furthermore if the economic outlook and deflationary risks so require, the SNB will take further measures and that massive overvaluation of the Swiss franc poses acute threat to the Swiss economy and carries risk of deflation.

I have talked about this here before and the determination of the SNB to win this current battle if not the currency war. Remember that last week's comment that they would have to live with the strong franc was from a finance ministry official and not the SNB who have complete power in these matters. They are clever enough to allow those comments to set the bear trap, including their own recent lack of action in the markets to fool traders into short EUR/long CHF positions and they succeeded, and some. There will be some unimaginable losses on books this morning, although there will also be those who picked up long EUR/CHF trades when it dipped to 1.10 which is where I mentioned that the SNB might defend it.

This morning's move has had an extreme knock-on effect and will continue to do so. EURUSD was looking to test the 1.4000 bottom side of the range that I have been carping on about and jumped immediately to 1.4284 as traders scrambled for cover but is now back at 1.4177. Similarly GBPUSD was down at 1.6070 and leapt to 1.6209 but lagging behind the EUR of course so that EURGBP, from looking to test support at 0.8730 is now back at 0.8801 ( GBPEUR 1.1370 ).

Years of trading the Swissy left me in no doubt as to the astute understanding of the market by the SNB and I have always held them in the highest regard along with the German Bundesbank. The biggest test now will be whether they can hold it here. No central bank is bigger than the market and the SNB resolve will be undoubtedly tested, once the severe shock of today's moves have been metered.

The Euro, from looking poised to weaken over the next period, has effectively now found itself another crutch of support along with the usual Asian Central Bank buying. The scale and impact of today's action has been huge and cannot be underestimated. If anyone has any further questions/views on this I will be glad to receive them.

Elsewhere in the market Gold got slapped down on the back of the CHF move and after reaching new record highs of $1921, saw an immediate drop to $1860 but hey guess what, they're buying the dips again and its back to $1896.

Last night the RBA left Aussie interest rates on hold at 4.75% as expected and this morning the ECB have been buying Italian and Spanish bonds but hey, on a morning like this that's a long way off the important list.

Data out today already included weaker than expected German factory orders and there's US data this afternoon but no-one's paying attention to that right now or indeed the BOE and ECB interest rate decisions this Thursday.

After 30 years involved in it the FX market never fails to amaze me and I have witnessed many wild and legendary days. Today is now on that list.

Today's Data:

Weekly Economic CalendarHERE

Interbank Rates as of 08.19 BST

Current Price

Overnight

High

Low

EUR/USD

1.4186

1.4284

1.4037

GBP/USD

1.6129

1.6209

1.6065

EUR/GBP

0.8793

0.8821

0.8732

GBP/EUR

1.1367

1.1453

1.1335

GBP/CHF

1.3681

1.3858

1.2604

GBP/AUD

1.5219

1.5331

1.5195

EUR/CHF

1.2028

1.2199

1.1017

GBP/HKD

12.5050

12.5670

12.4560

GBP/ZAR

11.4400

11.5353

11.3811

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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