EUR/CHF is up a whopping 300 pips today, touching 1.0160 from as low as 0.9787 in early Asian trading.
Fundamentals mean very little in this pair at the moment and flows are volatile as trades are unwound and the market tries to find a footing. Momentum is king.
It's impossible to say but the new seller of Swiss francs is the Croatian central bank. On the weekend, parliament there approved a plan to strengthen the Croatian kuna by 18% and peg it to the Swiss franc at 6.39.
This sounds like a disastrous idea as attempting to strengthen a currency is much more difficult than trying to devalue one (and even that proved a bad idea for the Swiss). The central bank openly opposed the move.
The peg, evidently, hasn't been put in place today by the looks of things, but it sets up an epic front-run on the central bank. Selling into CHF/HRK now at 7.58 and then buying it back at the peg level of 6.39 would deliver a 15% return.
The catalyst for the move was that many consumers took out loans in Swiss francs and they've been hit with an extra 20% bill. Similar loans were popular in Hungary, Serbia, Slovenia, Poland and elsewhere.
Overall, something just ‘feels' wrong about this trade because at first blush, it's just way too easy.
CHFHRK to be pegged at 6.39
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
