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Here is Roger’s latest post on this topic as well.
Trader Tracks Newsletter Major Alert
After the Bell Continued: Late News Alert Thursday, 1-15-15:
We did previously forecast a diversion or major split between the Swiss Franc currency and the sinking Euro Currency. Our prediction was correct as it happened today.Immediately the Swiss Franc shot up in value so much, it was reported an adult drink formerly at $6 will now cost $41! In our view, they had to do this as larger currency
“Reuters: The Swiss National Bank shocked financial markets on Thursday by scrapping a three-year-old cap on the franc, sending the safe-haven currency soaring against the Euro and stocks plunging amid fears for the export-reliant Swiss economy. The volume on the Swiss stock exchange was 600% of normal according to Bloomberg Television this morning.
Only days ago, SNB officials had described the 1.20 francs per Euro cap, introduced in 2011 at the height of the Euro-Zone crisis to prevent the strong currency leading to deflation and a recession, as the cornerstone of the bank’s monetary policy.
The U-turn sent the franc nearly +30% higher against Euro in chaotic early trading. It came a week before the European Central Bank is expected to unveil a massive bond-buying program that might have forced the SNB to intervene repeatedly to defend the cap.
“Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country,” said Nick Hayek, chief executive of Swiss watch firm Swatch. SNB Chairman Thomas Jordan denied at a news conference that the move amounted to a “panic reaction”, saying the cap had been scrapped because it was unsustainable. “If you decide to exit such a policy, you have to take the markets by surprise,” Jordan said.
As it removed the upper limit on the currency, the SNB sought to discourage new flows into Swiss Francs by pushing down its interest rate on some cash deposits held at the central bank by commercial banks and other financial institutions. After taking the rate into negative territory last month for the first time since the 1970s, it cut another 0.5 percentage points on Thursday to -0.75 percent, a move Jordan said would help ease upward pressure on the Franc over time.
“The values we currently see (on currency markets) point to a massive overvaluation of the Franc. They should come back down to more sustainable levels,” Jordan said. “Markets tend to overreact when confronted with such a surprise.” Earlier this month, Jordan described the cap as “absolutely central”, while SNB vice-chairman Jean-Pierre Danthine said on Monday it would remain the cornerstone of SNB policy.
Leading newspaper Neue Zuercher Zeitung described the move as “unavoidable”. On social media, however, it was dubbed “Francogeddon”. With more than 40 percent of Swiss exports going to the euro zone, a strong franc is a nightmare for leading exporters. Swiss shares tumbled over -10 percent, putting them on track for their biggest one-day fall in at least 25 years and wiping about 100 billion Swiss francs off the main index.
Banks UBS and Credit Suisse were both down over -10% at 1315 GMT, while Richemont, which owns luxury watchmaker Cartier, and Swatch were the biggest losers, down roughly -15%. Christian Levrat, president of the left-wing Social Democrat party, called the move “a serious threat for tens of thousands of Swiss jobs”. As markets tumbled, people rushed to banks to change money. “I’ve never seen such a drop in one go, it’s huge. People will probably be buying euros, but also dollars and other currencies,” said one UBS teller, after selling Euros to a Russian client.
Investors have been sweeping up the Swiss currency as the ECB considers printing money to buy bonds, or quantitative easing. Europe’s showdown with Russia over Ukraine has also put pressure on the Euro and made the Franc more attractive. Swiss quote analysts Ipek Ozkardeskaya said recent heavy interventions to defend the cap may have forced the SNB’s hand.
“Given the pressures on the EUR/CHF, an accidental break of the floor would have been more serious for SNB credibility,” she said, adding that panic around the Franc was likely to continue until the SNB unveils a “new game plan”. In the first minutes of trading, the franc broke past parity to trade at 0.8052 francs per euro before trimming gains to 1.0255.
Fitch’s managing director of sovereign ratings Ed Parker said the move would not affect Switzerland’s top-grade rating. Roger: It will enhance their credit rating as the premium “Go to currency” in all of Europe valued higher than Germany’s old Mark Currency, if that currency was trading. Germany now trades in Euros. Germany will be the next to dump the Euro for their old Marks as soon as reasonably possible. This will hasten the demise of the ECB, ECB bonds and the Euroland Grand Experiment.
“Clearly a change in monetary policy is an important event in terms of looking at what is going to happen to the Swiss economy but it is not a sovereign rating issue at the moment.” –Reuters News: Reporters Caroline Copley, Katharina Bart, Stephanie Nebehay and Paul Carrel; Writing Tom Miles; Editing Noah Barkin & Catherine Evans