Dear Traders,
Since December 2011, I have been granted the guru status, yet I have not made an entry in the guru blog. Time to change that! For my first guru blog entry I would like to share my view on the scheduled SNB event of tomorrow morning, 15 March 2012 at 8:30 (am) GMT.
There is only one question that everybody wants to see answered, will the SNB raise the floor or not? Below, I will try to explain what I think will happen under both scenarios and why.
First, there is the scenario where the SNB either directly raises the floor or announces strong measures to weaken the Swiss franc. Of course, the first obvious reaction to the raising of the floor is that the EUR/CHF will go through the roof; this can spike as high as 1.2650 (assuming they raise the floor to 1.2500), followed by a strong pullback to 1.2500, caused by profit takers.
What is more interesting, though, is what will happen in other crosses, most importantly (for my account) the USD/CHF and EUR/USD. If the SNB decides to raise the floor they will do so by selling Swiss franc’s to buy a truck load of Euros. It is noteworthy to mention that the SNB spent around 17.8 billion Swiss francs last year in raising the floor and maintaining it. Initially, both the USD/CHF and the EUR/USD will get a large boost from 1) the weakening of the Swiss Franc and 2) the SNB buying many Euros. What will follow after the initial raise, should it happen, is that traders will look for another safe haven currency.
At this time, that can be either the Japanese Yen or the U.S. Dollar. Since the JPY is under a lot of pressure these days, due to measures taken by the Japanese government, it is most likely that the choice of safe haven currency will be the USD. With this capital flowing from the CHF to the USD there will another USD boost, which will cause the USD/CHF to get another boost as well, but at the same time this will put pressure on the EUR/USD to lessen the initial boost it received by the SNB action.
In short, the SNB’s raising of the floor means a double boost for the USD/CHF and boost plus pressure on the EUR/USD. Another pair I’d like to mention is the USD/JPY which will also gain on the raise.
The second scenario is simple yet rather complicated at the same time, in my opinion, not because of what will happen in this case, but how it will happen. At the time of this writing, the EUR/CHF trades at just over 1.2100 and I think we will attempt, and succeed, to break 1.2130 before the SNB announcement. Moments after the SNB announces that they will not raise the floor, or take other strong measures, the gains we have seen today will, as we say in the Netherlands, melt as snow before the sun.
In addition, to the traders who went long hoping for an intervention and now close their longs, there will also be traders that go short at the same time, this will pummel the EUR/CHF to new lows and I am sure we will see 1.2020 soon after the announcement, should it not be in favor of the Swiss Franc.
At this point, things get very hard to predict, because there are many theories. From my point of view I still think that the SNB will not let the floor break below 1.2000. Why? Because threats mean nothing without follow through. If the SNB fails to defend the floor, they will not only lose credibility for this policy, but more importantly, also for any decision or policy they enforce in the future.
What will happen to other pairs? Personally, I think the results in other crosses will be fairly light compared to a raise of the floor. Besides the USD/CHF that will fall back to 0.9000 levels, I don’t think there will be extraordinary moves (from my accounts’ point of view!), but this will greatly depend on the actions taken by the SNB, if the market tests the floor. The EUR/USD may gain a little due to more Swiss franc demand = less USD demand.
In short, no SNB actions tomorrow mean an immediate test of the 1.2000 floor, which forces the SNB to take action, or make them give up on the floor (my guess is that the SNB would take action, if forced).
The majority of traders support the second scenario, where the SNB takes no action. Personally, I agree, BUT, not taking action tomorrow morning will force the SNB to aggressively defend the floor as well, so I think we will see SNB action regardless of the decision.
Another popular theory I want to address is the SNB letting the floor break to 1.1900, to clear all longs and pending longs, to spend less money raising the floor. This is not a theory I support, however, because of the reasons I mentioned earlier, i.e. the credibility of the SNB.
Actions I will take if the floor is raised: I will first set the SL of any open green EUR/CHF trade in profit, before the announcement, and I will use the 50 OW pips as a buffer in case they won’t. Should the SNB raise the floor, I will close half my EUR/CHF positions and let the other half ride with stops 50 or 100 pips under the new floor. I will let my open USD/CHF positions ride (for the seconds boost).
Actions I will take if the floor is not raised: First, I will set the SL of any open EUR/CHF and USD/CHF in profit before the announcement and I will use the 50 OW pips as a buffer for EUR/CHF positions; afterwards I will take a loss on my open EUR/CHF positions that are opened at or over 1.2400.
Actions you could take if you do not have any EUR/CHF positions: A good opportunity to score some pips is to set a long order @ 1.2250, or higher, with a TP @ 1.2500. Why? The only way we will see this level is if/when the SNB raises the floor. So if it opens it will be profitable.
As my final comment, I would like to stress that this is just my opinion based on my point of view and experience regarding my own account. Any action you take after reading this blog entry is your own responsibility!
I wish everybody a great trading week,
Since December 2011, I have been granted the guru status, yet I have not made an entry in the guru blog. Time to change that! For my first guru blog entry I would like to share my view on the scheduled SNB event of tomorrow morning, 15 March 2012 at 8:30 (am) GMT.
There is only one question that everybody wants to see answered, will the SNB raise the floor or not? Below, I will try to explain what I think will happen under both scenarios and why.
First, there is the scenario where the SNB either directly raises the floor or announces strong measures to weaken the Swiss franc. Of course, the first obvious reaction to the raising of the floor is that the EUR/CHF will go through the roof; this can spike as high as 1.2650 (assuming they raise the floor to 1.2500), followed by a strong pullback to 1.2500, caused by profit takers.
What is more interesting, though, is what will happen in other crosses, most importantly (for my account) the USD/CHF and EUR/USD. If the SNB decides to raise the floor they will do so by selling Swiss franc’s to buy a truck load of Euros. It is noteworthy to mention that the SNB spent around 17.8 billion Swiss francs last year in raising the floor and maintaining it. Initially, both the USD/CHF and the EUR/USD will get a large boost from 1) the weakening of the Swiss Franc and 2) the SNB buying many Euros. What will follow after the initial raise, should it happen, is that traders will look for another safe haven currency.
At this time, that can be either the Japanese Yen or the U.S. Dollar. Since the JPY is under a lot of pressure these days, due to measures taken by the Japanese government, it is most likely that the choice of safe haven currency will be the USD. With this capital flowing from the CHF to the USD there will another USD boost, which will cause the USD/CHF to get another boost as well, but at the same time this will put pressure on the EUR/USD to lessen the initial boost it received by the SNB action.
In short, the SNB’s raising of the floor means a double boost for the USD/CHF and boost plus pressure on the EUR/USD. Another pair I’d like to mention is the USD/JPY which will also gain on the raise.
The second scenario is simple yet rather complicated at the same time, in my opinion, not because of what will happen in this case, but how it will happen. At the time of this writing, the EUR/CHF trades at just over 1.2100 and I think we will attempt, and succeed, to break 1.2130 before the SNB announcement. Moments after the SNB announces that they will not raise the floor, or take other strong measures, the gains we have seen today will, as we say in the Netherlands, melt as snow before the sun.
In addition, to the traders who went long hoping for an intervention and now close their longs, there will also be traders that go short at the same time, this will pummel the EUR/CHF to new lows and I am sure we will see 1.2020 soon after the announcement, should it not be in favor of the Swiss Franc.
At this point, things get very hard to predict, because there are many theories. From my point of view I still think that the SNB will not let the floor break below 1.2000. Why? Because threats mean nothing without follow through. If the SNB fails to defend the floor, they will not only lose credibility for this policy, but more importantly, also for any decision or policy they enforce in the future.
What will happen to other pairs? Personally, I think the results in other crosses will be fairly light compared to a raise of the floor. Besides the USD/CHF that will fall back to 0.9000 levels, I don’t think there will be extraordinary moves (from my accounts’ point of view!), but this will greatly depend on the actions taken by the SNB, if the market tests the floor. The EUR/USD may gain a little due to more Swiss franc demand = less USD demand.
In short, no SNB actions tomorrow mean an immediate test of the 1.2000 floor, which forces the SNB to take action, or make them give up on the floor (my guess is that the SNB would take action, if forced).
The majority of traders support the second scenario, where the SNB takes no action. Personally, I agree, BUT, not taking action tomorrow morning will force the SNB to aggressively defend the floor as well, so I think we will see SNB action regardless of the decision.
Another popular theory I want to address is the SNB letting the floor break to 1.1900, to clear all longs and pending longs, to spend less money raising the floor. This is not a theory I support, however, because of the reasons I mentioned earlier, i.e. the credibility of the SNB.
Actions I will take if the floor is raised: I will first set the SL of any open green EUR/CHF trade in profit, before the announcement, and I will use the 50 OW pips as a buffer in case they won’t. Should the SNB raise the floor, I will close half my EUR/CHF positions and let the other half ride with stops 50 or 100 pips under the new floor. I will let my open USD/CHF positions ride (for the seconds boost).
Actions I will take if the floor is not raised: First, I will set the SL of any open EUR/CHF and USD/CHF in profit before the announcement and I will use the 50 OW pips as a buffer for EUR/CHF positions; afterwards I will take a loss on my open EUR/CHF positions that are opened at or over 1.2400.
Actions you could take if you do not have any EUR/CHF positions: A good opportunity to score some pips is to set a long order @ 1.2250, or higher, with a TP @ 1.2500. Why? The only way we will see this level is if/when the SNB raises the floor. So if it opens it will be profitable.
As my final comment, I would like to stress that this is just my opinion based on my point of view and experience regarding my own account. Any action you take after reading this blog entry is your own responsibility!
I wish everybody a great trading week,
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