The massive move in the Swiss Franc versus the Euro has claimed its early victims. On Thursday, the Swiss National Bank (SNB) suddenly removed its four-year peg of 1.2 to the Euro. The Franc went up to 0.85 to the Euro and later, settled at 1.04. How did the SNB do it? If someone wanted to sell the EURO to buy the CHF, or the EURCHF pair (the trading pair of 1 euro versus the Swiss Franc, whose symbol is the CHF) the SNB would go buy it at 1.2. Since the SNB can print CHF, it can endlessly buy the Euro if the other side wanted to sell. The SNB wanted to do it so their exports remained competitive against the EUro. This has hurt leveraged players in the FX space. It was a turkey trade – if the SNB was protecting the 1.2 peg, then you never had to worry about, say, a 1.1 put option working in the favour of the buyer.… (Read On…)
[via Capital Mind]
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