A Trader’s Perspectives On The Swiss Franc Unpeg Event

By Lawrence

Back in 2011, when SNB suddenly announced their decision to peg Swiss Franc to Euro, I commented that from that point in time, I would not touch anything related to Swiss Franc in my trading. Fast forward to the latest unpeg event, the decision is proven to be correct. However, I do not agree with the chatter on the net about people who have called for the unpeg being good calls.

My reason back in 2011 was based on the simple fact that the decision makers at SNB act on impulse and rationalize the action after.

What does that imply? There can be future actions coming from SNB any time. And SNB indeed adjusted the peg several times after the first move.

What does that have to do with trading? We cannot control the risk at all on any positions we put on as long as Swiss Franc is involved. If you do not understand the sentence I just wrote, let me rephrase it this way. It does not matter how many trades you can win from forex pairs linked to Swiss Franc, all it takes is one action from SNB to wipe you out.

The bets people have on the unpegging or the continuation of the pegging are both foolish. You cannot time the stupidity of the decision makers at SNB. The chance of unpegging is high but you cannot time it. But the more important thing people ignored is that the chance of keeping the peg or even strengthen it more to burn the market participants is equally high given the track records of central bankers hatred against the trading communities.

In short, betting either way is wrong. Hands off is the only correct action if you care about the risk involved.

Going forward, it is still not safe to trade anything linked to Swiss Franc. SNB can continue to surprise the market by pegging again. Since we cannot trust SNB for leaving Swiss Franc alone, it is not a good idea to trade it unless you know what and when SNB will do next.

I do not have access like that so I prefer safety of my capital and better trading opportunities else where.

Share

Comments
  • Minty415 January 19, 2015 at 11:45 am

    Good wisdom LC. I also came across an interesting article about the ownership structure of SNB below:

    “Many economists believe that balance sheet losses are irrelevant for a central bank, so they should play no role in policy. But the SNB is 45 percent owned by private shareholders, many of whom are individuals, who receive dividends from the SNB. The rest is owned by the cantons, which have been complaining recently about insufficient cash transfers from the SNB.

    This ownership structure contrasts sharply with most other central banks, which are in effect government departments, wholly owned by the treasury and therefore the taxpayer. The Swiss set-up makes the SNB particularly concerned about balance sheet losses, especially since disgruntled citizens can directly force changes in monetary and reserves policy via referendum.”

    Read more: http://pragcap.com/the-snb-is-48-privately-owned-no-wonder-they-de-pegged

  • You must be logged in to comment. Log in