Credit: REUTERS/ARND WIEGMANNJune 30 (Reuters) - For more than a decade the massive FX intervention conducted by Switzerland's National Bank has suppressed volatility, helping to contain EUR/USD in tighter ranges. That policy has ended now, and with it EUR/USD is free to move. It is prudent to expect bigger movement and greater volatility.
When the SNB intervenes it supports EUR/CHF underpinning EUR/USD too. When reserves are subsequently rebalanced with over 60% of the euros purchased sold and 39% converted to dollars it weighs EUR/USD.
This has a top and tailing effect with EUR/USD supported at the outset and subsequently weighed, and because of the great size of SNB operations which saw reserves top 1 trillion Swiss francs, the SNB's made a big impression on EUR/USD curtailing volatility and almost certainly suppressed speculation.
The intensification of intervention and doubling of the FX reserves after the 1.2000 EUR/CHF peg was abandoned amplified the SNB's influence on EUR/USD with volatility sinking to a record low.
Freed of the SNB and losing the enormous liquidity it provided EUR/USD can move more, and traders who have grown used to years of relative inactivity should anticipate greater movement.
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EURUSD, vol, EURCHF and SNB reserveshttps://tmsnrt.rs/3Ny37Lx
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
((jeremy.boulton@thomsonreuters.com))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
