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As of early this morning the Swiss Central Bank (SNB) has backed out of the market and has temporarily suspended currency intervention. The market reaction has been swift. The dollar has soared against the Euro along with all of the Euro crosses. Equities markets have all reacted negatively.
What triggered the Swiss to back off the intervention is a critical question. My answer to that is that the SNB has never intended to hold a given level of the E/CHF. The SNB has a very good handle on the supply and demand conditions in the market. If they see demand for the CHF that is in excess of their ability/willingness to absorb they just back off and let the market find a new level that they can more easily control.
This mornings demand for CHF against the crosses is probably related to new information on Eastern European (Hungary) and possibly supported by rumors at Soc.Gen. It does not matter what the impulse for the current move. The lesson to learn is that the SNB is unwilling to hold any given rate for the E/CHF. Their only objective is to slow the inevitable. With that lesson now learned there is no bottom for the Euro. We have entered a new, highly uncertain FX environment.