Swiss Franc’s testing of Euro currency floor boosting trading volumes

Trading activity in Switzerland’s franc is gathering force with the currency closer to its 1.20-per-euro cap than at any time in the past two years. The increase in trading levels came as sight deposits at the Swiss National Bank rose last week, signaling that policy makers may have sold the franc to weaken it in order to defend the cap for the first time since September 2012. The Swiss currency strengthened to 1.2009 per euro on Nov. 19, within 0.1 percent of the limit. It traded at 1.2026 at 2:44 p.m. London time today.

“The floor is going to hold at any cost,” New York-based Brehon said in a phone interview today with Bloomerg. People “are finding it as we’re getting closer and closer to the floor a better risk- reward ratio. You can buy at these levels and it’s only going to go down a trivial amount more to 1.20,” he said.

Switzerland’s largest bank, UBS AG, saw the biggest-ever net buying of the shared European currency against the Swiss franc last week, according to strategists including London-based Geoffrey Yu. The volumes may indicate traders were speculating the SNB will successfully defend its euro limit, they wrote in an e-mailed note yesterday.



As you can see in the chart above the EUR/CHF floor of 1.20 is being successfully defended this November, savvy traders would be wise not to go against the Swiss National Bank


The central bank introduced its currency cap more than three years ago to aid exporters in the Alpine country as investors sought the relative safety of the franc at the height of the euro area’s sovereign-debt crisis, with the re-engaging in stimulus efforts in the past couple of months the SNB has again been put on notice.

Options traders paid a 1.7 percentage-point premium today for three-month contracts to sell the euro versus the Swiss currency over those allowing for purchases, data compiled by Bloomberg News show. The level earlier reached 1.72 percentage points, the most since September 2012.

Source: Bloomberg

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