The Swiss authorities have struggled to restrain the rise in the franc as the unit appreciated against the dollar and the euro due to credit concerns on both sides of the Atlantic. Having given up on the idea of direct FX intervention - a policy that cost the central bank more 30 Billion CHF in losses last year, Swiss monetary policy makers have now resorted to the possibility of a peg with the reported equilibrium value of 1.100. Such a move by advanced industrialized economy against its major trading partner is exceedingly rare and the question remain whether the SNB will be able to succeed should it put this plan in to action.
However, simply the prospect of a peg has had an enormously powerful impact on the market as late short have scurried for cover in one of the most volatile trading episodes in currency market history. Over the past week the daily price range in the CHF pairs has sometimes exceeded 400% of the average true range for the past year in testament to the massive swings in investor sentiment towards the pair.
Although we know that volatility tends to be much more mean reverting than price, so far the action in the Swissie has shown no signs of easing as the franc remains the central story of currency trade. If risk flows continue to remain positive into the North American open the longs may try to squeeze the USD/CHF to .8000 and EUR/CHF to 1.1500 before the rally finally encounters some resistance.