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11 Nov 2014
Gold referendum: Would a 'yes' vote complicate EUR/CHF floor management? - TDS
FXStreet (Bali) - While Strategists at TDS think that a “yes” vote in the SNB gold referendum would complicate the management of EURCHF floor, they remain confidence that the central bank will continue to defend the floor for the foreseeable future.
Key Quotes
"The Swiss government and the SNB oppose the initiative but opinion polls suggest a tight race. Most local analysts appear to be assuming that the initiative has little chance of success but the market has pressured EURCHF on the assumption that approval will undermine the implementation of the SNB’s CHF cap."
"We think a “yes” would complicate the SNB’s management of the EURCHF floor but we are highly dubious that approval means the central bank simply gives up and the floor disappears any time soon. There are a number of ways the SNB can rebalance reserves, as we point out above, and the process will be phased in over a lengthy period of time after all. The immediate impact of a “yes” will be limited."
"Moreover, there are still options in the SNB toolkit that can be deployed (negative interest rates) in the event of approval putting upward pressure on the CHF. Deflationary risks remain and we do not think the SNB can afford to abandon the CHF cap."
"Given these factors and the relatively high hurdle we think the gold initiative has to overcome for approval, we favour fading the recent slide in EURCHF here; buy current spot at 1.2028, risk 1.1975; target 1.2175. There’s not a great deal of upside in the trade but the risk is, theoretically, contained."
Key Quotes
"The Swiss government and the SNB oppose the initiative but opinion polls suggest a tight race. Most local analysts appear to be assuming that the initiative has little chance of success but the market has pressured EURCHF on the assumption that approval will undermine the implementation of the SNB’s CHF cap."
"We think a “yes” would complicate the SNB’s management of the EURCHF floor but we are highly dubious that approval means the central bank simply gives up and the floor disappears any time soon. There are a number of ways the SNB can rebalance reserves, as we point out above, and the process will be phased in over a lengthy period of time after all. The immediate impact of a “yes” will be limited."
"Moreover, there are still options in the SNB toolkit that can be deployed (negative interest rates) in the event of approval putting upward pressure on the CHF. Deflationary risks remain and we do not think the SNB can afford to abandon the CHF cap."
"Given these factors and the relatively high hurdle we think the gold initiative has to overcome for approval, we favour fading the recent slide in EURCHF here; buy current spot at 1.2028, risk 1.1975; target 1.2175. There’s not a great deal of upside in the trade but the risk is, theoretically, contained."