You think central banking policies are good for you? Not really.
Bullion.Directory precious metals analysis 15 January, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics
The Swiss National Bank (SNB) escaped the gold referendum in November, and they were able to hold onto their precious EURCHF floor. The purpose was to keep the Swiss franc cheaper relative to the euro in order to boost exports.
Cheaper franc no more!
The three-year floor was abruptly abandoned by the SNB, causing the Swiss franc to appreciate to the highest level at once ever! This caused the EURCHF to decline from the floor of 1.20 to .80 (that’s 4,000 pips!) before rebounding. The USDCHF, largely seen as a proxy for the dollar index, fell 13 percent.
The move also caused the Swiss equity market to crash 15 percent. There are rumors floating that the SNB did this to front-run a potential quantitative easing plan from the ECB that would be massive. If this is the cause, would have made the SNB’s floor more costly to obtain. Remember, in November, the SNB said it would defend the floor at all costs and would buy unlimited amounts of FX to defend it. Joke’s on the market.
A lot of people lost a lot of money. Trading is binary, but it goes to show you how dangerous it is to assume a trade will last forever due to central bank support (hint, hint US equities).
The trend is your friend…. until the very end!
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