Financial Markets in Turmoil as the SNB drops the EUR Currency Cap

Financial Markets in Turmoil as the SNB drops the EUR Currency Cap
January 18, 2015

The Swiss National Bank (SNB) stunned financial markets this week as they dropped the EURCHF 1.20 floor (peg) without any warning whatsoever.

As a consequence, a veritable tsunami  hit the markets and victims appeared after dust settled: one of the UK’s largest Forex brokers, Alpari, went bust and applied for insolvency. While the biggest retail broker in the United States, FXCM, reported over 250 million losses as a result of the move by the SNB.
 

:

 
What the SNB did was to throw the towel as, for almost four years, they were the main Euro buyers in order to protect the 1.20 level. Therefore, the EURCHF pair was not floating freely, and as a result the USDCHF was doing exactly the same thing. The more EURUSD dipped, the more the USDCHF should have gone up in order for the 1.20 floor/peg in the cross to hold.

However, the SNB couldn’t keep up with the challenges in the world financial markets and, probably as a first step in what would be a huge QE (Quantitative Easing) program in Europe, it let the 1.20 floor go.

In a matter of seconds, if not less, EURCHF dropped like a rock as the whole financial community was taken by surprise. The first quotations were seen as 0.96, only for the cross to go as low as 0.85-0.86. Brokers went bust, dealers as well, retailers received huge margin calls…. all in all, a day like no other.

Swiss equity market plummeted to levels not seen since 1980’s, more than 10% vanishing in pure air.

What’s next?

We would say the focus should stay with the ECB (European Central Bank), as what we saw this week is nothing but a preemptive move from the SNB ahead of what the ECB is going to do.

In conclusion, we are looking for the European Central Bank to announce a huge quantitative easing program this coming Thursday, and we can only think of two main beneficiaries out of this program: a higher USDJPY and higher equities.

Are you searching for a broker to trade Forex and currency related Binary Options? Try our approved and tested brokers today.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


Related Articles

Apple Commits $3bn for Stake in Toshiba Chip Business

  According to the latest report, the iconic iPhone manufacturer Apple Inc (NASDAQ: AAPL) is planning to invest $3 billion

Coca-Cola Beats 2Q17 Estimates, Raises EPS Growth Outlook

  Aided by an increase in demand for healthier non-carbonated beverages and sugar free sodas, Coca-Cola Company (NYSE: KO) reported

Attacks in Paris and the Effects on Major Currencies

  This week started with a tragic note as the events in Paris were poised to influence trading. Markets opened