SNBomb – Reactions from 12 forex brokers - page 2
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Franc Jumps Off Cliff as SNB's Danthine Suggests Intervention
he Swiss franc fell briefly to its weakest level against the euro on Tuesday since the Swiss National Bank (SBN) abandoned its 1.20 exchange-rate cap, as the bank's vice president Jean-Pierre Danthine hinted his willingness to still intervene on the forex market to keep the franc weak.
"Giving up the cap means a tightening of monetary policy. We accept this, but only up to a point. We are fundamentally prepared to intervene in the foreign exchange market," Danthine said in an interview with Tages-Anzeiger newspaper published on Tuesday.
Separate interviews for the Tribune de Geneve and 24 Heures brought similar comments. Danthine told the latter that the current euro-franc exchange rate wasn’t justified.
The Swiss currency was traded 0.76% lower at ₣1.0229 against the euro during the mid-European session. Earlier in the day, however, its depreciation was even greater as was down 1.7% at ₣1.0370 levels, extending its trading above parity.
'No currency war'
Shifting focus to the SNB's decision to remove the cap - which sparked a massive tornado on the forex markets - he refuted suggestions that it represented a currency war, and said while the European Central Bank’s decision to introduce quantitative easing was a monetary policy decision, it would have side effects for other currency regions.
He added that the central bank had no choice but to abandon its three-and-a-half-year-old cap, as the common currency was no longer a suitable reference for the franc. The volume of interventions could have reached ₣100 billion in January, an unsustainable level, he said.
“Switzerland is affected by quantitative easing in Europe,” he admitted.
Swiss National Bank Scraps Hard Franc Ceiling, Replaces With Soft Ceiling Instead
A little over three years after the Swiss National Bank embarked on one of the most shortsighted attempts to control its currency, one which cost it a balance sheet that ballooned to an amount equal to an gargantuan 80% of Swiss GDP, and in the process transforming it into an FX hedge fund whose biggest holding was the fastest depreciating DM currency, the Euro, the SNB - as everyone knows by now - shocked the world, and countless retail brokers, when it reported out of the blue that the Swiss cap would be no more, in the process unleashing the most vicious short squeeze in FX history, and sending the EURCHF from 1.20 to 0.80 before stabilizing at around 1.00 (if only before last week's month end window dressing by the SNB meant to dilute the P&L impact of the soaring CHF on its balance sheet).
The aftermath of this historic surge in the Franc is what most now agree will lead to an all out Swiss recession, as not only its export industry just got crushed, but tourism into Switzerland will be drastically reduced as a result of what to foreigners appears as a 20% drop in their purchasing power. Add that to the already well-known woes surrounding Swiss banking, whose deposit-funding model is now long-gone history, and one wonders just what will propel Swiss growth in the future?
In retrospect, what the SNB really did was be the first developed central bank to admit defeat in the global currency wars, realizing that contrary to "popular" Magic Money Tree opinion, it does not have an infinite balance sheet. And now the time has come to pay the price for delaying reality by over three years.
To many this was a welcome move as it means after several years of horrendous monetary policies, Switzerland has finally regained some monetary sense, and while the near-term economic (and stock market) pain may be acute, the long-term will be thankful.
And then, earlier today, we read that the SNB didn't learn its lesson after all, and instead of a hard EURCHF 1.20 floor, it is now unofficially targeting an exchange rate of 1.05-1.10 per Euro, according to Schweiz am Sonntag.
More from Reuters:
It is unclear if this story is what official Swiss policy now is as a spokesman for the central bank refused to comment, or if this is merely an attempt at verbal intervention to test if the EURCHF can rise to 1.10 without the Swiss bank buying billions of Euros each day. However, if indeed the story is true, is merely mark the second abysmal decision the Swiss Bank has done since September 2011, because the only difference between then and now is that a) it has lost almost all credibility and b) if and when the 1.05 lower bound is tested, and the CHF surges below the stops, it will not only cost the SNB even more losses but further undermine what little credibility it does have left.
Indeed, as our friend Sean Corrigan put it rhetorically, "So the SNB has a 1.05/10 'corridor' for swissy. Does that mean they now only buy EUR1 not 3 billion a day!?"
Probably yes, but what's worse, there is no "utmost determination" language present anywhere, which means that the lower bound of the corridor will be promptly attacked at which point the story will be quietly retracted, only to reemerge in a few weeks with a "new" corridor suggestion, this one even lower for the EURCHF.
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SNB Continues Forex Interventions. Just How Much?
According to the weekly reporting of sight deposits held at the Swiss National Bank by domestic banks, deposits increased by ₣55 billion in January, which could have been a result of forex intervention.
The Swiss National Bank (SNB) clearly stated that it could continue to intervene in the currency markets to 'influence monetary conditions,' following the shocking January 15 removal of its official 1.20 EUR/CHF cap.
"The SNB will continue to take account of the exchange rate situation in formulating its monetary policy in future. If necessary, it will therefore remain active in the foreign exchange market to influence monetary conditions," the central bank said in its statement accompanying the decision.
According to recent Swiss media reports, the SNB unofficially targets a corridor of 1.05-1.10 EUR/CHF. However, there's a lot of uncertainty about current and future central bank interventions.
"One timely indicator of FX reserves comes from the weekly reporting of sight deposits held at the SNB by domestic banks," a BNP Paribas research team wrote in a note to clients on Tuesday.
"In January, these deposits increased by ₣55 billion, which could have been a result of FX intervention before and after the removal of the floor. Over time, there is a strong positive relationship between sight deposits and official foreign currency reserves," BNP researchers said.
The SNB is scheduled to release its official foreign currency reserves for January on Friday. The fresh data should bring more clarity to the SNB's activities on the forex market.
"However, one distorting factor will be the valuation impact of the strengthening CHF on its existing reserves," the BNP team warned. "We calculate that, in isolation, CHF appreciation reduced the currency reserves by around ₣55 billion to ₣440 billion, from ₣495 billion at the end of December."
Swiss franc outlook
As a result of such measures, even if the SNB resorted to such aggressive interventions as the weekly sight deposit data suggest, January total currency reserves may come in as flat on a monthly basis.
"Therefore, we believe that even a report of reserves around ₣495 billion is likely to keep downward pressure on the CHF, as it would be an indication that the SNB was uncomfortable with EUR/CHF trading below 1.0500," BNP researchers wrote.
"This should help push EUR/CHF towards our year end forecast of 1.08 over time; while USD/CHF should continue to move towards parity," the BNP strategy team concludes.
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Some brokers still going after negative balances
While we are almost a month away from the SNBomb, the aftershocks are still felt. The sudden leap in the Swiss franc’s value left quite a few clients that shorted CHF in a case of a negative equity.
Most forex brokers did forgive negative balances: accepted the liquidation of the clients’ accounts and didn’t demand them to deposit more money. This is the right thing to do. However, there are some brokers who pursue the money. Here are 2 updates:
We believe that forex traders should not lose more than they deposit, and that chasing clients for negative balances is set to result in negative publicity and thus a bigger loss than forgiveness.
Is your broker going after you for a negative balance resulting from the SNBomb? Let us know.
SNBomb – Reactions from 75 forex brokers | Forex Crunch
"retroactively repriced some trades and is chasing its own customers for about $100 million in losses"
What a beauty
Negative balances: warning the clients just isn’t enough
4 weeks after the SNBomb and some brokers are still going after negative balances of traders that went short on the franc and are now required to pay more than they deposited.
Saxo Bank, which was heavily scrutinized a bit too harshly by the Wall Street Journal for taking a hard line against clients with negative balances, came out defending itself, saying it warned clients about their long CHF positions. Here is why this is just not enough:
Risk management
So, Saxo Bank was aware of the one sided nature of CHF positions and even warned clients back in September and even took action by raising margin requirements. This was reported in advance by Forex Magnates, which revisited this topic now, also speaking to Steen Blafaalk, which serves as Group Chief Financial & Risk Officer and a member of the Board of Management at Saxo Bank.
This sounds good: they were aware of the risks and took measures. Not all brokers bothered to check this out. So, the company not only included such a case in its Terms & Conditions but also took an extra step and went forward with a warning.
There is no doubt that everything is legal, but probably not smart enough.
But wait, the broker still lost a lot of money on January 15th: it expected to see a loss of up to $107 million due to the SNBomb. The risk management of Saxo Bank CFO leaves much to be desired.
But what does this imply about future risk management? Some brokers that made even worse risk management decisions are no longer with us, and it isn’t certain that clients will see their funds returned.
Bad Reputation
Moving from the past to the present, what will they and other brokers get from chasing negative balances? They will probably retrieve some of the money, but will likely lose more in bad publicity. Saxo Bank CFO is quoted as saying: “But some of us want to have a lifetime relationship with clients, so we want to offer a prudent opportunity to do risk management and diversification and to add value”.
How is asking traders to pay more than they were willing to risk consistent with a “lifetime relationship”?
If these clients return to forex trading, will they opt to deposit even more funds with the broker that chased them? Will this move serve to attract new prospective clients?
I hope that Saxo Bank as well as other brokers that go after negative balances reconsider these decisions. It’s never too late to change your mind.
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Swiss central bank under scrutiny after franc shock
Six weeks after a fateful decision that blasted its currency skywards, Switzerland's central bank is coming under intense scrutiny, with critics calling for changes to its insular policy practices and century-old ownership structure.
The shock of the Jan. 15 move by the Swiss National Bank (SNB) to abandon the franc's three-year-old cap against the euro is still reverberating, with politicians stepping up their criticism as the economy falters.
With an election looming this year, the pressure is likely to grow. The Social Democratic Party (SP) is pushing for a parliamentary debate on the workings of the SNB and its tiny three-governor board, a structure it says has led to opaque decision-making. Lawmakers from the party came away dissatisfied from a rare meeting with one of the governors last week.
"It can't be that three people have more influence over a country's destiny than the government," Susanne Leutenegger Oberholzer, a Social Democrat lawmaker, told Reuters.
The move by the SP, which holds two seats on the seven-member council that governs Switzerland, is part of a wider backlash since the SNB move that sent the franc soaring against the euro, threatening an economy that relies heavily on exports to Europe.
A slump could further erode confidence in the SNB's ability to deliver on its mandate to ensure stable prices and, as it states on its website, an "appropriate environment for economic growth". The nominally independent bank may find it increasingly difficult to shut out the noise from Swiss politicians.
"The SNB will come under pressure to do everything it can to depreciate or stop the appreciation of the franc," said Thomas Straubhaar, an economics professor at Hamburg University. "However the options are very limited."
The SNB justified its decision by saying the ceiling on the currency, introduced at the height of the euro zone debt crisis in 2011 at a rate of 1.20 francs per euro, was unsustainable, especially as the European Central Bank (ECB) was about to unveil a trillion-euro bond-buying scheme that would push the euro lower.
Swiss media have praised the SNB for having the guts to make the controversial move. But the decision has also cast a harsh spotlight on the bank, three years after its previous chairman stepped down in a scandal over his wife's currency trades.
read more
SNB Gov hints at why intervention abandoned
SNB alternate Governor Moser says central bank waged bit interventions at end 2014
I get the feeling some Soros is out there sitting on $1 billion and keeping a low profile after waging a war with the SNB.
Did you miss the SNB? It strikes again
hree months after dropping the bomb and removing the floor under 1.20, the Swiss National Bank takes measures to try to limit the strengthening of the franc.
The decision to tighten the negative deposit rates, already tightened back in January, has sent EUR/CHF higher.
The Bank has announced that less exemptions will be available from May 1st: these include public entities and some pension funds. There are still some governmental institutions that are exempt.
EUR/CHF was losing some ground in recent weeks, as investors were not too deterred from the negative interest rates and the occasional interventions by the SNB.
This move sent the cross above 1.03, reaching a high of 1.0366, but this isn’t too strong: at the time of writing, we are back to 1.0330.
And this time, the impact on EUR/USD is limited. The major pair is actually sliding as concerns about Greece join some dollar strength. The Swiss impact is not huge this time.